Delhi High Court
Home Solutions Retails (India) ... vs Uoi & Ors. on 23 September, 2011
Author: Dipak Misra,Chief Justice
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ WP(C) No.3398/2010
Judgment reserved on: 20th May, 2011
% Judgment pronounced on: 23rd September, 2011
HOME SOLUTIONS
RETAILS (INDIA) LTD. ..... PETITIONER
Versus
UNION OF INDIA & ORS. ..... RESPONDENTS
ALONG WITH CONNECTED WRIT PETITIONS BEING
WP (C) Nos. 3746, 3750, 3782, 3783, 3809, 3837, 3838, 3856, 3867,
3868, 3869, 3881, 3886, 3936, 4010, 4025, 4026, 4028, 4050, 4054,
4079, 4081, 4086, 4087, 4091, 4092, 4098, 4115, 4132, 4139, 4144,
4214, 4216, 4319, 4367, 4440, 4503, 4538, 4539, 4549, 4616, 4650,
4757, 4787, 4792, 4907, 4929, 4952, 5067, 5074, 5123, 5127, 5137,
5138, 5145, 5159, 5160, 5221, 5222, 5223, 5224, 5226, 5227, 5241,
5246, 5263, 5267, 5286, 5291, 5338, 5342, 5346, 5353, 5472, 5545,
5548, 5639, 5652, 5679, 5747, 5751, 5844, 5856, 5896, 5960, 5965,
5970, 5972, 6004, 6021, 6025, 6030, 6047, 6084, 6174, 6189, 6296,
6320, 6345, 6376, 6377, 6392, 6401, 6449, 6490, 6535, 6551, 6553,
6604, 6605, 6659, 6666, 6668, 6669, 6673, 6741, 6750, 6785, 6842,
6861, 6869, 6882, 6883, 7032, 7075, 7106, 7237, 7307, 7308, 7328,
7356, 7369, 7393, 7394, 7454, 7605, 7710, 7747, 7772, 7775, 7896,
7916, 7917, 7930, 7954, 7986, 7988, 8005, 8069, 8087, 8088, 8099,
8124, 8288, 8316, 8317, 8320, 8323, 8379, 8380, 8386, 8387, 8388,
8389, 8390, 8391, 8392, 8447, 8488, 8588, 8674 of 2010,
15, 202, 242, 476, 498, 866, 965, 968, 1121, 1128, 1220, 1488, 1585,
1640, 1783, 1787, 1996, 2015, 2341, 2573, 2582, 2613, 2651, 2652,
2654, 3008, 3019, 3058 and 3373 of 2011.
ADVOCATES APPEARED:
For Petitioners:
Mr.Harish Salve, Dr. A.M. Singhvi, Mr. S. Ganesh, Mr. N.K.
Kaul, Sr. Advocates with Mr. Rishi Agarwala, Mr. Ameet Naik,
Mr. Akshay Ringe, Mr.Nikhil Rohtagi, Mr. Vatsal Shah,
Mr.S.Sukumaran, Mr.Anand Sukumaran and Mr.Bhupesh
Kumar Pathak, Ms. Dhanashree Deoskar, Mr. Aneesh Patnaik,
Advocates for Petitioner in CWP No. 3398/2010
Mr. Sumesh Dhawan, Ms. Vatsala Kak, Advs. for Petitioners in
CWP Nos. 5159/2010 & 5160/2010
Mr.Rajiv Bansal, Advocate for petitioners in CWP
Nos.4952/2010 & 5267/2010.
Mr. Amit Gupta, Mr. A.S. Aman, Advs. for Petitioner in CWP
No.5241/2010
Mr. P.K. Sahu, Mr. Srinivas, Mr. Sandeep Jha, Mr.Prashant
Shukla, Advs. for Petitioner in CWP Nos. 4139, 5246 & 5246 of
Mr. Ruchir Bhatia, Adv. for Petitioner in CWP Nos. 4050, 4539,
5342, 5346, 6741, 7710, 7772 & 7775 of 2010
Mr. Manish Sharma and Mr.Vishal Malhotra, Advs. for
petitioner in CWP No.5751/2010
Mr. Milanka Chaudhury, Mr.Puneet Yadav and Mr.Abhishek
Sharma, Advs. for Petitioner in CWP No. 6376/2010
Ms. Meenakshi Arora and Ms.Vaishnavi Krishnamani, Advs. for
Petitioner in CWP No.5639/2010
Mr. Rajat Bhalla, Adv. for Petitioner in CWP No.6449/2010
Mr. Biji Rajesh, Mr. Shiladitya Goswami, Advs. for Petitioner in
CWP No.6047/2010, 6785/2010
Mr. Shivanand Thakur, and Mr.Rajesh Bhatnagar, Advs. for
Petitioner in CWP No.8069/2010
Mr. Jasmeet Singh, Mr. K.D. Sengupta, Advs. for Petitioner in
CWP Nos. 6861, 6883, 7393 & 7930 of 2010 and 15/2011.
Mr. S.P. Menia, Adv. for Petitioner in CWP No.8674/2010
Mr. R.K. Pandey, Adv. for Petitioner in CWP No.866/2011
Mr. J.K. Mittal, Mr. Arun Gulati, Advs. for Petitioner in CWP
No.7747/2010
Ms.Vibha Datta Makhija and Mr.Philemon Nongbri, Advocates
for Petitioner in CWP No. 6869/2010
Mr. Anuj Berry and Mr.Manu Nair, Advs. for Petitioner in CWP
Nos. 4538/2010 & 5074/2010.
Mr. Akashdeep Kakkar, Adv. for Petitioners in CWP Nos.8386,
8387, 8390, 8391 & 8392 of 2010
Mr. Raman Kapur, Advocate for Petitioners in CWP
No.7988/2010
Mr.Debashish Moitra and Mr.Rajat Jain, Advocates for
Petitioner in CWP No.5896/2010
Mr.Vijay K. Singh, Advocate for Petitioner in CWP No.
242/2011 and 1128/2011
Mr.Mohan Kukreja, Advocate for Petitioner in CWP
No.6750/2010
Mr.M.P.Devnath, Mr.Monish Panda and Mr.Abhishek Anand,
Mr.K. Krishnamohan Menon, Advocates for Petitioners in
WP(C) Nos. 3746, 4086, 4092, 5291, 6174, 8288, 8388 and8389
of 2010 and 1585/2011.
Mr. Gaurang Kanth, Mr. Saurabh Khanna, Advs. for Petitioner
in CWP Nos. 6047/2010 & 6785/2010
Mr. Satyen Sethi, Mr. A.T. Panda, Advs. for Petitioner in CWP
No.5972 of 2010
Mr.Atul Jain, Advocate for Petitioner in CWP No. 965/2011.
Ms.Roopa Dayal, Advocate for Petitioners in CWP Nos. 4650,
7307, 7308 and 7356 of 2010
Mr. Raj K. Batra, Mr. Rohan Ahuja, Advocates for Petitioners in
CWP Nos. 6377, 6401, 6490, 6551 and 6553 of 2010
Mr.Pawan Kumar Bansal, Advocate for Petitioner in CWP
No.7106/2010
Mr. Ashu Kansal, Mr. Aniket Gautam, Advs. for Petitioner in
CWP Nos. 5067, 5224, 7328, 8099, 8320 & 8323 of 2010
Mr.Tarun Gulati, Mr. Neil Hildreth, Mr.Sparsh Bhargava,
Mr.Rony O John, Mr.Shashi Mathews, Ms.Shruti Sabharwal and
Mr. Kishore Kunal, Advocates for Petitioners in CWP Nos.
4081, 4616, 5286, 6296 & 7032 and 5263 of 2010
Mr. Rajiv K. Garg and Ashish Garg, Advocates for Petitioner in
CWP Nos. 4757/2010, 5896/2010, 6320/2010 and 7394/2010.
Mr. Ashish Batra, Adv. for Petitioner in CWP No.3750/2010
Mr. Hemant K. Chaudhry, Adv. for Petitioner in CWP
No.8317/2010
Mr.Kunal Tandon, Advocate for Petitioners in CWP Nos.
4115/2010, 5965, 5970 & 7986 of 2010
Mr.Mrityunjay Kumar Tiwary, Advocate for Petitioner in CWP
No. 7454/2010
Ms. Alka Srivastava, Adv. for Petitioner in CWP Nos.5221,
5222, 5223, 5226 of 2010
Mr. Piyush Kumar, Ms. Shikha Sapra, and Mr. Abhinav Jain,
Advs. for Petitioners in CWP Nos. 4440/2010 and 4054/2010
Mr. Kunal Sinha, Adv. for Petitioner in CWP No.6605/2010
Mr.Arun Kumar Roy, Advocate for Petitioner in CWP No.
15/2011
Mr.Niraj Singh and Mr.Lakhmi Chand, Advocates for Petitioner
in CWP No. 6345/2010
Mr.L.K.Bhushan, Mr.Munish Malik and Mr.Gaurav Bahl,
Advocates for Petitioner in CWP No. 4929/2010
Mr. Gaurav Gupta, Adv. for petitioners in CWP Nos. 6535/2010
& 8380/2010
Mr.Kavin Gulati and Ms.Rashmi Singh, Advocates for
Petitioners in CWP Nos. 8316/2010 and 8588/2010
Mr. Ajit Warrier, Mr. Varun Shankar, Mr. Divyakant Lahoti,
Adv. for Petitioner in CWP No.7075/2010
Mr.Sunil Kumar, Advocate for Petitioner in CWP No.498/2011.
Mr.Prem Prakash, Advocate for Petitioner in CWP
No.7369/2010.
Mr.Ajay Bhargava, Ms.Vanita Bhargava and Mr.Nitin Misra,
Advocates for petitioners in CWP Nos. 3783, 4025, 4087, 4098,
4132, 4907, 5545, 5548, and 6604 of 2010
Mr. Amir Singh Pasrich, Mr.Mohit Sharma and Mr.Aditya Jain,
Advocates for Petitioner in CWP No. 4787/2010
Mr. Balbir Singh, Mr. Deepak Sinhmar, Adv. for petitioner in
CWP No.3936/2010
Mr. Vivek Sarin, Adv. for the petitioner in CWP No.8447/2010
Mr. K.K. Khurana, Mr. Anshul Arora, Mr. A.K. Mehta, Adv. for
petitioners in CWP Nos. 1121/2011, 1220/2011
Mr.R.K.Gupta, Advocate for Petitioner in CWP No.6084/2010.
Mr.Rakesh Mukhija, Mr.Gurpreet Singh and Mr.Rohit Sharma,
Advocates for Petitioner in CWP No.4539/2010, 5145/2010,
6030/2010, 6673/2010 and 7954/2010.
Mr.Sanjeev Kumar and Mr.Manu Yadav, Advocates for
Petitioners in CWP 4079/2010
Mr.Manu Monga, Advocate for Petitioner in CWP
No.5652/2010
Mr.Amit Sood, Advocate for Petitioners in CWP Nos.5227/2010
and 7237/2010
Mr.Alishan Naqvee and Ms.Rupal Bhatia, Advocates for
Petitioners in CWP Nos.3867, 3868, 3869, 3881, 3886/2010,
4050, 4319, 5353 and 8088/2010.
Mr. Neeraj Kishan Kaul, Sr. Adv. with Mr.Kapil Rustagi and
Mr.Karan Luthra, Advocates for petitioner in WP(C) 1488/2011
Mr. K.K. Narang, Mr.Sanjay Visen and Mr.Kaushal Narayan
Mishra, Advocates for Petitioners in CWP No.1783/2011,
1787/2011 & 2015/2011
Mr.Rajeev Kumar and Ms.Alka Srivastava, Advocates for
Petitioners in CWP No.5221/2010, 5222/2010, 5223/2010 and
5226/2010.
Mr.Anirban Bhattacharya and Mr.Viveknanda, Advocates for
Petitioners in CWP Nos.4079/2010 and 7075/2010.
Mr.Vikas Chopra and Mr.Ashish Mahajan, Advocates for
Petitioner in 4139/2010.
Mr.Rajeev Kumar, Advocate for Petitioner in CWP
Nos.5221/2010,5222/2010,5223/2010 and 5226/2010.
Mr. Sudhir Makkar, Adv. for Petitioners in CWP Nos.2613/2011
& 2654/2011
Mr. Chirag M. Shroff, Adv. for the Petitioner in CWP
Nos.2651/2011 and 2652/2011
Mr. Manish Sharma, Adv. for Petitioner in CWP No.3058/2011
Mr.Rahul Raj Verma, Adv. for Petitioner in CWP No.1121/2011
and CWP 1220/2011.
For Respondents:
Mr.A.S.Chandhiok, ASG with Mr. Bhagat Singh,
Mr.H.C.Bhatia, Ms.Sonia Sharma, Mr.Gurpreet S. Parwanda and
Mr.Sumit Batra, Mr. Jatan Singh, Mr.Ruchir Mishra, Mr. S.P.
Kansal, Mr. Vikrant Sharma, Mr. Ravinder Agarwal, Ms.
Anjana Gosain, Mr.Sachin Datta, Mr.B.V.Niren, Advocates for
respondent Union of India.
Mr. Mukesh Anand, Adv. for Department of Service Tax &
Central Board of Excise & Customs in CWP Nos. 3398/2010,
3746, 3750, 3782, 3783, 3809, 3837, 3838, 3856, 3867, 3868,
3869, 3881, 3886, 3936, 4010, 4025, 4026, 4028, 4050, 4054,
4079, 4081, 4086, 4087, 4091, 40, 92, 4098, 4115, 4132, 4139,
4144, 4214, 4216, 4319, 4367, 4440, 4503, 4538, 4539, 4549,
4616, 4650, 4757, 4787, 4792, 4907, 4929, 4952, 5067, 5074,
5123, 5127, 5137, 5138, 5145, 5159, 5160, 5221, 5222, 5223,
5226, 5227, 5246, 5267, 5291, 5639, 5652, 5679, 5751, 6750,
6785, 6842, 6869, 6882, 7369, 7393, 7454, 7747, 7916, 7917,
7954, 8087, 8088, 8099, 8316, 8317, 8320, 8323, 8379, 8380,
8386, 8387, 8388, 8389, 8390, 8391, 8392, 8447, 8488, 8588,
8674 of 2010 and CWP Nos. 965, 968, 1121, 1128, 1220, 1585,
2613, 2651, 2652 and 2654 of 2011
Mr. Satish Kumar, Adv. for Department of Revenue, Ministry of
Finance, Central Board of Excise & Customs, DG, Service Tax
in CWP Nos. 5224, 5241, 5338, 5342, 5346, 5353, 5545, 5546,
5747, 5844, 5856, 5896, 5960, 5965, 5970, 5972, 6004, 6021,
6025, 6030, 6047, 6084, 6174, 6189, 6296, 6320, 6345, 6376,
6377, 6392, 6401, 6449, 6490, 6535, 6551, 6553, 6605, 6659,
6666, 6668, 6669, 6741, 6861, 6883, 7032, 7075, 7106, 7237,
7307, 7308, 7328, 7356, 7394, 7605, 7710, 7747, 7772, 7775,
7896, 7916, 7986, 8005, 8069, 8087, 8088, 8099, 8124, 8288,
8488, of 2010, 242, 498, 866, 1783, 1787, 1996, of 2011
Mr.Atul Nanda, Sr. Advocate with Mr.Ruchir Mishra, Mr.Anuj
Aggarwal and Mr.Gaurav Khanna, Advocates for UOI in CWP
Nos. 4754/2010, 5145/2010, 6376/2010, 6401/2010, 6449/2010,
7237/2010, 7916/2010, 7930/2010 and 7986/2010.
Mr. Amish Tandon, Adv. for Respondent No.36 to 38 in CWP
No. 5896/2010
Mr. Amrreeta Swaarup, Adv. for Respondent Nos. 27 to 29 in
CWP No.15/2011
Mrs.Anusuya Salwan, Advocate for Respondent No.4 in CWP
No. 6296/2010
Mr. Shobit Chandra, Adv. for Respondent No.8 in CWP
No.3782/2010
Mr. Anil Grover, Mr. Rakesh Kumar Garg, Advs. for
Respondents in CWP No. 15/2011
Mr. Neeraj Chaudhary, CGSC for UOI in CWP Nos.4952, 5267,
6666, 6668, 6669, 6673, 6882 of 2010 and CWP No.1220, 2573
and 2582 of 2011
Mr. Sunil Kumar, Mr. Rajiv Ranjan Mishra, Advs. for UOI in
CWP No.3837/2010
Mr. Sumesh Dhawan, Ms. Vatsala Kak, Advs. for Respondent
Nos. 4 to 6 in CWP No. 6741/2010 and for Respondent No.7 in
CWP No.3837/2010.
Ms.Pooja Singh, Advocate for Respondent No.8 in CWP Nos.
3809/2010 & 3837/2010 and for Respondent No.6 in CWP
Nos.4503/2010 & 5751/2010
Ms.Malabika Sarkar, Ms.Susmita Lal and Mr.G.K.Sarkar,
Advocates for Respondent No. 8 in CWP No.6861/2010
Mr. Kapil Kher, Adv. for Respondent No.5 in CWP
No.4081/2010, for Respondent Nos. 48 & 49 in CWP
No.4025/2010 and for Respondent Nos. 17 & 18 in CWP
No.15/2011
Ms. Neha Mittal, Adv. for Respondent No.4 in CWP
No.6396/2010
Mr. Sahil Mongia, Adv. for Respondent Nos. 20, 21 and 22 in
CWP No. 7394/2010
Mr.Nirbhay Sharma for Mr. Anjum Javed, Adv. for Respondent
No. 4 in CWP Nos.6861/2010 & 6883/2010.
Ms.Bhanita Patowary, Advocate for Respondent No.7 in CWP
No. 6376/2010
Mr.Rajan Bhanti, Advocate for Respondent No.5 in CWP
No.6376/2010
Mr. Vaibhav Arora, Mr.Ajay Monga, Mr. Ateev Mathur and
Mr.Sumit Bansal, Adv. for Respondent No.5 in CWP
No.4929/2010 and for Respondent Nos. 6 to 8 in CWP
No.4010/2010
Mr. Satyen Sethi, Mr. A.T. Panda, Advs. for Respondent No.3 in
CWP No.4092/2010
Ms.Priyanka Kathuria and Ms.Sangeeta Chandra, Advocates for
Respondent DDA in CWP No.4132/2010.
Mr. Sangeeta Sharma, Adv. for Respondent No.8 in CWP
4050/2010
Ms.Archana Gaur, Advocate for MCD in CWP No.4132/2010.
Mr.Rajiv Nanda, Addl. Standing Counsel with Ms.Rachna
Saxena, Advocate for Respondent No.4 in CWP Nos. 5291/2010
and 5965/2010
Ms.Bindra Rana and Ms.Meenu Sharma, Advocates for
Respondent No.21 in CWP No.6376/2010
Mr. Neil Hildreth, Mr.Sparsh Bhargava, Mr.Rony O John,
Mr.Shashi Mathews and Ms.Shruti Sabharwal, Advocates for
Respondent No.39 in CWP No.3838/2010, for Respondents
No.6 and 7 in CWP No. 7106/2010, for Respondent No.49 in
CWP No.4091, for Respondent No.51 in CWP No. 6376/2010
Mr. Rajat Aneja, Adv. for Respondent Nos. 7 to 11 in CWP
No.4092/2010
Mr. Rakesh Chitkara, Mr. Surender Gupta, Advs. for respondent
in CWP Nos. 5679/10, 5844/10, 5856/10, 5960/10, 6666/10,
6668/10, 6669/10, 8087/10 & 8124 of 2010
Mr. Arun K. Sharma, Adv. for Respondent No.4 in CWP
No.7605/2010
Mr. Arun Vohra, Adv. for Respondent No.4 & 6 in CWP
No.8380/2010
Mr. K.K. Khurana, Mr. Anshul Arora, Mr. A.K. Mehta, Adv. for
Respondent No.54 in CWP No.5127/2010
Mr. Praveena Gautam, Adv. for Respondent No.5 in CWP
No.6376/2010
Mr. Vikram Saini, Adv. for Respondent No.4 in CWP
No.6296/2010
Mr. S.P. Kaushal, Mr. Vikrant Sharma, Adv. for Respondent
Nos.14 to 18 in CWP No.4792/2010
Mr. B.B. Gupta, Adv. for Respondent in CWP Nos. 4319, 5067,
5241, 5970, 5972/2010.
Ms. Aakansha Munjhal, Adv. for Respondent-JSL in CWP
No.4050/2010
Mr. Mahesh B. Chhibber, Adv. for Respondent Nos. 12 to 16 in
CWP No.4139/2010
Mr. Mehjaveen A. Marak, Adv. for Respondent No.5 in CWP
No.4539/2010
Mr. Vaneet Garg, Adv. for respondent Nos. 51 to 57 in CWP
No. 5896/2010 and for Respondent Nos. 9 & 10 in CWP No.
7394/2010
Mr. Kartik Bhatnagar, Mr. Sarthak, Advs. for Respondent in
CWP No.5159/2010
Mr. Akashdeep Kakkar, Adv. for Respondent in CWP
No.15/2011
Mr. Digvijay Rai, Adv. for AAI in CWP Nos. 4538, 5074 &
7106 of 2010
Mr. Vinod Mehta, Adv. for Respondent Nos. 21, 22, 23, 42 & 43
in CWP No.15/2011
Ms. Divya Jain, Mr. Atul Grover, Adv. for Respondent Nos. 8 &
Mr. Kapil Arora, Ms. Manjula, Advs. for Respondent No.13 in
CWP No.7394/2010
Mr. Anshul Arora, Mr. A.K. Mehta, Adv. for Respondent No.54
in CWP No.4050/2010
Mr. Navneet Kumar and Mr.Deepak Chawla, Adv. for J&K
Bank.
Mr.Anil Kher, Sr.Advocate with and Mr.S.S. Pandit, Advocate
for Respondent No.17 and 18 in CWP No.7393/2011 for
Respondent No.5 in CWP No.4081/2010 and for Respondent
Nos.48 and 49 in CWP No.4025/2011.
Mr.Mahesh B. Chhiber, Advocate for Respondent No.12 to 16 in
CWP No.4139/2010.
Ms.Amreeta Swarup, Advocate for Respondents No.27 to 29 in
CWP No.15/2011
Mr.Harsh Raghuvanshi for Mr. Arvind Nayar, Advocate for
Respondent No.7 in CWP No.3837/2010.
Mr.Rahul Raj Verma, Advocate for Respondent No.54 in WPC
4050/2010.
Mr.Shobhit Chandra, Advocate for respondent No.8 in WP(C)
No.3782/2010.
Mr.Arvind Nayyar and Ms.Taniya Sharma, Advocates for
Applicant Ambiance Mall in CWP No.3750/2010.
Mr.Anurag Chawla, Advocate for Respondent in CWP
No.15/2011
CORAM:
HON'BLE THE CHIEF JUSTICE
HON'BLE MR. JUSTICE A.K. SIKRI
HON'BLE MR. JUSTICE SANJIV KHANNA
1. Whether reporters of the local papers be allowed to see Yes
the judgment?
2. To be referred to the Reporter or not? Yes
3. Whether the judgment should be reported in the Digest? Yes
DIPAK MISRA, CJ
In this batch of writ petitions preferred under Article 226 of the
Constitution of India, the constitutional validity of Section
65(105)(zzzz) of the Finance Act, 1995 (for short „the 1995 Act‟) and
Section 66 as amended by the Finance Act, 2010 (for brevity „the 2010
Act‟) is called in question. The matters were initially placed before a
Division Bench wherein the learned counsel for the parties raised many
a submission and regard being had to the nature of the cases, the
Division Bench thought it appropriate that the controversy should be
dwelled upon by a larger Bench. Thereafter, the matters have been
placed before us.
2 For the sake of clarity and convenience, we shall advert to the
facts adumbrated in W.P.(C) No.3398/2010 and deal with the
contentions canvassed by the learned counsel for the parties in all the
writ petitions as the issue is common to all. The petitioner, a registered
company under the Companies Act, 1956, has taken commercial
property / shops on rent for carrying on its retail business. It takes
immovable property by way of lease or licence and once the lease deed
or the deed of licence is entered with the owner, there is no continuous
flow of transaction between them. The tenant is entitled to use the
premises for a fixed tenure under the agreement and the transaction
with the owner is a onetime transaction. The transactions are principal
to principal and there is no value addition by providing the premises on
lease / licence by the owner of the property. The petitioner, as pleaded,
is a substantial contributor to the sustained growth and development of
the national economy and has contributed huge amounts to the revenue
by payment of taxes, charges and cess under diverse heads and the
premises occupied by it establishing commercial establishments like
shops are meant for diverse situations and, accordingly, arrangements
have been made. The consideration paid by the petitioner under the
lease deed or agreement of licence is purely a consideration for
acquiring the occasional and possessory rights of these premises and
utilizing the same. The premises that have been taken by the petitioner
have been referred to in the petition and it is urged that in the case of
the agreements that have been entered with the respective owners, the
liability rests with the owners to pay the service tax but the owners
insist upon the petitioner to make payment of the service tax. It is
contended that an artificial liability has been created on the tenants by
the Finance Act, 1994 which introduced the service tax. Reference has
been made to sub-section 90(a) which was inserted in Section 65 of the
Finance Act, 1994 by the Finance Act, 2007 to tax any "service
provided to any person by any other person in relation to renting of
immovable property for use in the course or furtherance of business or
commerce". The renting of immovable property has been defined to
include renting, letting, leasing, licensing and other similar
arrangements of immovable property for use in the course of
furtherance of business or commerce including use as factory, building,
warehouse, exhibition halls, multiple use building, etc. The said
provision came into force with effect from 1.6.2007. It is urged that
contrary to the express words of the provisions of the Act, the first
respondent, placing an erroneous interpretation on Section
65(105)(zzzz) as it stood in 2007, issued a notification No.24/2007
dated 22.5.2007. After the notification was issued, a circular dated
4.1.2008 was issued by the Ministry of Finance of the Union of India.
The constitutional validity of the notification and the circular was
questioned before this Court in the case of Home Solution Retail India
Ltd. v. Union of India, 158 (2009) DLT 722 (DB).
3. In the case of Home Solution Retail India Ltd. (supra), it was
contended that the notification and circular had come into existence by
absolute fallacious interpretation placed on Section 65(105)(zzzz) and
Section 65(90)(a) inasmuch as an attempt has been made to levy
service tax on renting of immovable property as opposed to the levy of
service tax on the service provided "in relation to renting of immovable
property". The Division Bench adverted to the language employed in
the notification dated 22.5.2007 and the circular dated 4.1.2008 and
after referring to the decisions in T.N. Kalyana Mandapam
Association v. Union of India & Others, (2004) 5 SCC 632, All India
Federation of Tax Practitioners & Ors. v. Union of India, (2007) 7
SCC 527, Doypack Systems Private Limited v. Union of India, (1998)
2 SCC 299, BSNL v. Union of India, (2006) 3 SCC 1, Commissioner
of Income-tax, Bangalore v. B.C. Srinivasa Shetty, (1981) 2 SCC
460, Lucknow Development Authroity v. MK Gupta, (1994) 1 SCC
243, NS Nayak and Sons v. State of Goa, (2003) 6 SCC 56 and
interpreting the terms "in relation thereto", distinguished the decision
rendered in T.N. Kalyana Mandapam Association (supra) holding that
the utilization of premises as a mandap by itself would constitute
service as has been held by the Apex Court but the same is different
from the kind of activity that is contemplated under Section
65(105)(zzzz). The Division Bench thereafter proceeded to state as
follows:
"33. The next decision which requires
consideration is the decision of the Supreme Court
in the case of All India Federation of Tax
Practitioners (supra). We have already quoted
paragraph 8 of the said decision wherein it has
been observed that service tax is a value added tax
and that just as excise duty is a tax on value
addition on goods, services tax is on value addition
by rendition of services. A distinction has also
been sought to be made between property based
services and performance based services. The
property based services cover service providers,
such as architects, interior designers, real estate
agents, construction services, mandap keepers, etc.
Whereas the performance based services are those
provided by persons, such as stock-brokers,
practising chartered accountants, practising cost
accountants, security agencies, tour operators,
event managers, travel agents etc. The Supreme
Court also noted that service tax is a tax on service
and not on the service provider.
34. From the above discussion, it is apparent
that service tax is a value added tax. It is a tax on
value addition provided by a service provider. It is
obvious that it must have connection with a service
and, there must be some value addition by that
service. If there is no value addition, then there is
no service. With this in mind, it would be
instructive to analyse the provisions of Section
65(105)(zzzz). It has reference to a service
provided or to be provided to any person, by any
other person in relation to "renting of immovable
property for use in the course or furtherance of
business or commerce". The wordings of the
provision are so structured as to entail - a service
provided or to be provided to „A‟ by „B‟ in relation
to „C‟. Here, „A‟ is the recipient of the service, „B‟
is the service provider and „C‟ is the subject
matter. As pointed out above by Mr Ganesh, the
expression „in relation to‟ may be of widest
amplitude, but it has been used in the said Act as
per its context. Sometimes, „in relation to‟ would
include the subject matter following it and on other
occasions it would not. As in the case of the
service of dry cleaning, the expression „in relation
to dry cleaning‟ also has reference to the very
service of dry cleaning. On the other hand, the
service referred to in Section 65(105)(v), which
refers to a service provided by a real estate agent
„in relation to real estate‟, does not, obviously,
include the subject matter as a service. This is so
because real estate by itself cannot by any stretch
of imagination be regarded as a service. Going
back to the structured sentence, i.e.- service
provided or to be provided to „A‟ by „B‟ in relation
to „C‟, it is obvious that „C‟ can either be a service
(such as dry cleaning, hair dressing, etc.) or not a
service by itself, such as real estate. The
expression "in relation to" would, therefore, have
different meanings depending on whether „C‟ is a
service or is not a service. If „C‟ is a service, then
the expression „in relation to‟ means the service
„C‟ as well as any other service having connection
with the service „C‟. Where „C‟ is not a service,
the expression „in relation to‟ would have
reference only to some service which has a
connection with „C‟. But, this would not imply that
„C‟ itself is a service.
35. From this analysis, it is clear that we have to
understand as to whether renting of immovable
property for use in the course or furtherance of
business or commerce by itself is a service. There
is no dispute that any service connected with the
renting of such immovable property would fall
within the ambit of Section 65(105)(zzzz) and
would be exigible to service tax. The question is
whether renting of such immovable property by
itself constitutes a service and, thereby, a taxable
service. We have already seen that service tax is a
value added tax. It is a tax on the value addition
provided by some service provider. Insofar as
renting of immovable property for use in the
course or furtherance of business or commerce is
concerned, we are unable to discern any value
addition. Consequently, the renting of immovable
property for use in the course or furtherance of
business of commerce by itself does not entail any
value addition and, therefore, cannot be regarded
as a service. Of course, if there is some other
service, such as air conditioning service provided
alongwith the renting of immovable property, then
it would fall within Section 65(105)(zzzz).
36. In view of the foregoing discussion, we hold
that Section 65(105)(zzzz) does not in terms entail
that the renting out of immovable property for use
in the course or furtherance of business of
commerce would by itself constitute a taxable
service and be exigible to service tax under the
said Act. The obvious consequence of this finding
is that the interpretation placed by the impugned
notification and circular on the said provision is
not correct. Consequently, the same are ultra vires
the said Act and to the extent that they authorize
the levy of service tax on renting of immovable
property per se, they are set aside.
37. Before parting with this batch of cases, we
would like to observe that we have not examined
the alternative plea taken by the petitioners with
regard to the legislative competence of the
Parliament in the context of Entry 49 of List II of
the Constitution of India. Such an examination has
become unnecessary because of the view we have
taken on the main plea taken by the petitioners as
indicate above."
[Emphasis added]
4. From the aforesaid decision, it is quite vivid that the Division
Bench has held that Section 65(105)(zzzz) could not have brought in
its ambit and sweep the renting out of immovable property for use in
the course of furtherance of business or commerce to constitute a
taxable service and thereby exigible to service tax and, accordingly, the
notification and circular were declared ultra vires.
5. After the said decision was rendered, Section 65(90)(a) and
Sections 65 and 66 were amended. For the purpose of better
appreciation, the provision that existed prior to the Finance Act, 2010
and post amendment by the Finance Act, 2010 are produced below in a
tabular form:
PRIOR TO FINANCE ACT, 2010 POST AMENDMENT BY
FINANCE ACT, 2010
"Section 65 (90a) "renting of "Section 65(90a) "renting of
immovable property" includes immovable property" includes
renting, letting, leasing, licensing renting, letting, leasing, licensing
or other similar arrangements of or other similar arrangements of
immovable property for use in the immovable property for use in the
course or furtherance of business course or furtherance of business
or commerce but does not or commerce but does not
include- include-
(i) renting of immovable property (i) renting of immovable property
by a religious body or to a by a religious body or to a
religious body; or religious body; or
(ii) renting of immovable property (ii) renting of immovable property
to an educational body, to an educational body,
imparting skill or knowledge imparting skill or knowledge or
or lessons on any subject or lessons on any subject or filed,
filed, other than a commercial other than a commercial
training or coaching centre; training or coaching centre;
Explanation No.1:- For the Explanation No.1:- For the
purposes of this clause, "for use in purposes of this clause, "for use in
the course or furtherance of the course or furtherance of
business or commerce" includes business or commerce" includes
use of immovable property as use of immovable property as
factories, office buildings, factories, office buildings, ware
warehouses, theaters, exhibition houses, theaters, exhibition halls
halls and multiple-use buildings; and multiple-use buildings;
Explanation No.2: - For the Explanation No.2: - For the
removal of doubts, it is hereby removal of doubts, it is hereby
declared that for the purposes of declared that for the purposes of
this clause "renting of immovable this clause "renting of immovable
property" includes allowing or property" includes allowing or
permitting the use of space in an permitting the use of space in an
immovable property, irrespective immovable property, irrespective
of the transfer of possession or of the transfer of possession or
control of the said immovable control of the said immovable
property; property;
"Section 66-Charge of Service "Section 66-Charge of Service
Tax- Tax-
There shall be levied a tax There shall be levied a tax
(hereinafter referred to as the (hereinafter referred to as the
service tax) at the rate of twelve service tax) at the rate of twelve
per cent of the value of taxable per cent of the value of taxable
services referred to in sub clauses services referred to in sub clauses
....(zzzz).... of Clause (105) of ....(zzzz).... of Clause (105) of
Section 65 and collected in such Section 65 and collected in such
manner as may be prescribed.
manner as may be prescribed.
"Section 65(105) "taxable "Section 66(105) "taxable
service" means any service service" means any service
provided or to be provided - provided or to be provided -
... (zzzz) to any person, by any ... (zzzz) to any person, by any
other person in relation to renting other person, by renting of
of immovable property for use in immovable property or any other
the course or furtherance of service in relation to such renting,
business or commerce. for use in the course of or
furtherance of business or
commerce.
Explanation 1. - For the purposes Explanation 1. - For the purposes
of this sub-clause, "immovable of this sub-clause, "immovable
property" includes- property" includes-
(i) building and part of a building, (i) building and part of a building,
and the land appurtenant thereto; and the land appurtenant thereto;
(ii) land incidental to the use of (ii) land incidental to the use of
such building or part of a such building or part of a
building; building;
(iii) the common or shared areas (iii) the common or shared areas
and facilities relating thereto; and and facilities relating thereto; and
(iv) in case of a building located (iv) in case of a building located
in a complex or an industrial in a complex or an industrial
estate, but does not include - estate, all common areas and
facilities relating thereto, within
All common areas and facilities such complex or estate,
relating thereto, within such (v) Vacant land, given on lease
complex or estate, but does not or license for construction of
include- building or temporary structure at
a later stage to be used for
(a) vacant land solely under for furtherance of business or
agriculture, aquaculture, farming, commerce;
forestry, animal husbandry,
mining purposes; But does not include -
(b) vacant land whether or not (a) vacant land solely used for
having facilities clearly incidental agriculture, aquaculture, farming,
to the use of such vacant land; forestry, animal husbandry,
mining purposes;
(c) land used for educational,
sports, circus, entertainment and (b) vacant land, whether or not
parking purposes; and having facilities clearly incidental
to the use of such vacant land;
(d) building used solely for
residential purposes and buildings (c) land used for educational,
used for the purposes of sports, circus, entertainment and
accommodation, including hotels, parking purposes; and
hotels, boarding houses, holiday
accommodation, tents, camping (d) building used solely for
facilities. residential purposes and buildings
used for the purposes of
Explanation 2 - For the purposes accommodation, including hotels,
of this sub-clause, an immovable hostels, boarding houses, holiday
property partly for use in the accommodation, tents, camping
course or furtherance of business facilities.
or commerce and partly for Explanation 2 - For the purposes
residential or any other purposes of this sub-clause, an immovable
shall be deemed to be immovable property partly for use in the
property for use in the course or course or furtherance of business
furtherance of business or or commerce and partly for
commerce; residential or any other purpose
shall be deemed to be immovable
property for use in the course or
furtherance of business or
commerce;
Be it noted, the amendments have been brought with
retrospective effect.
6. Challenging the validity of the amendments, Mr. Harish N.
Salve, learned senior counsel, has submitted that the Parliament has no
authority to enact the impugned legislation as renting of immovable
property is a tax on lands and buildings which squarely comes within
Entry 49 of List II of the Seventh Schedule of the Constitution of India.
The learned senior counsel further submitted that the use of the word
„taxes‟ in Entry 49 connotes a multitude of taxes imposable on land
when the renting of an immovable property would squarely fall within
Entry 49 of List II. Relying on the decision in State of West Bengal v.
Kesoram Industries Ltd., (2004) 10 SCC 20, it is submitted that
reading Entry 49 of List II in a wide manner, it would include all types
of taxes imposed or imposable on lands and buildings and the same
would fall within the exclusive authority of the State Legislature and in
no manner would come within the residuary Entry 97 of List I by
virtue of which the Parliament can legislate. He has propounded that
the service tax imposed by the Parliament on renting of immovable
property takes into account the use of the land or building, hence, it is a
tax which the State Legislatures alone could conceivably impose under
Entry 49 of List II. In order to buttress the aforesaid submission,
reliance has been placed on the decision in Ajoy Kumar Mukherjee v
Local Board of Barpeta, AIR 1965 SC 1561 wherein a tax had been
imposed under Section 62 of the Assam Local Self Government Act,
1953 and while upholding the validity of the tax, the Apex Court noted
that the tax was, in substance, a tax on the land but the charge only
arose on the land which was used for a market. Expanding the
aforesaid stream of logic, the learned senior counsel submitted that the
act of renting of an immovable property by one person to another for
"commercial use" would come within the exclusive jurisdiction of the
State Legislature.
7. Pyramiding the above assertions, the learned senior counsel
contended that the impugned tax has direct nexus with the immovable
property and is nothing but a tax on land and buildings, the measure
being the rent payable by the tenant to the landlord for renting of the
immovable property. There is no difference between the transaction of
renting of immovable property and the property itself and, therefore,
the provision is a colourable piece of legislation.
8. The second plank of the learned senior counsel‟s submissions
emphasises on the relevance of the concept of "Aspect Theory" to the
Indian Constitutional scheme. It is urged by him that the "aspect
doctrine" is not applicable to the Indian Constitutional scheme as there
exist two separate Lists. As a clarification, it is proponed that the
"Aspect Theory" enunciated in Federation of Hotel Restaurant
Association of India (supra) limits itself only to such aspects which
could be directly covered by a specific entry in the two Lists. It is
urged by him that if Entry 97 is taken recourse to despite the specific
Entry of List II, it would create conflict and render the specific Entry
of List II subservient to the residuary Entry of List I which is not
permissible under the Constitutional scheme. Pressing into service the
decision in Godfrey Phillips India Ltd. Vs. State of U.P., (2005) 2
SCC 515, he further submitted that in the Indian context, if an aspect is
covered by an Entry in List I, then it cannot be said that another aspect
cannot be taxed under an Entry within List II. The same logic,
however, does not extend to a situation where the contest or cavil is
between the residuary Entry within List I and a specific Entry within
List II.
9. Mr. Salve has further argued that in the light of the judgment
rendered in Home Solutions (supra), renting by the landlord for
commercial purposes to the tenant, per se, could not be construed as
rendering of service. The concept of "service seeker" and "service
provider" as enunciated in the Finance Act 1994 is wholly absent in the
impugned legislation. He further submitted that the respondent‟s
justification of the impost on the ground that the power to tax rests
with the Parliament, employing deeming fiction to describe the tax as a
service tax within the residuary power of the Parliament, is totally
contrary to the constitution bench judgment of the Apex Court in
Godfrey Phillips India Ltd. (supra) wherein it has been authoritatively
pronounced that the Parliament cannot employ a deeming fiction to
bring in an incident of tax or a taxable event within its fold.
Highlighting the said proponement, it is urged that merely describing
the tax to be a "service tax" would not alter the nature of the tax for
being a tax on land and building and, therefore, the Parliament does not
have the legislative competence to introduce a deeming fiction to tax
renting of immovable property and, therefore, the impugned provision
deserves to be declared ultra vires.
10. Dr. Singhvi, learned senior counsel appearing in some of the
writ petitions, has submitted at the fore that there is no service involved
in the letting of immovable property and consequently, it is not open to
the Parliament to impose service tax on the assumption that the taxable
service is involved in letting of immovable property. It is submitted by
him that it is well settled in law that the Legislature in enacting a law is
entitled to enact or prescribe a deeming fiction but the exercise of the
said power comes with a limitation that by deeming a fiction, the
legislature cannot transgress upon a constitutional restriction or the
field of legislation that is reserved or demarcated for another
legislature. Alternatively, it is urged that any legal fiction, embedded
in the provisions of law enacted by the Legislature, does not confer any
legislative competence upon it which it does not otherwise possess
under the Constitution and the tax on the use of land and building for a
particular purpose being squarely covered under Entry 49 of List II
cannot be covered under the conception of „deemed‟. Edificing the
said proposition further, he submitted that letting of immovable
property for commercial purpose also constitutes a particular use of the
property and, therefore, the tax on such letting is squarely covered
under Entry 49 of List II. In this regard, reliance has been placed on
the decision of the Supreme Court in Kesoram Industries Limited
(supra).
11. Dr. Singhvi, drawing analogy from the internationally followed
principles, further submitted that even internationally, leasing / letting
of immovable property is exempted from value added taxation since it
has been construed that the same does not provide any value addition
and since the Government of India has sought to rely upon the
internationally accepted value added tax regime, it needs to follow the
same fully and exempt leasing / letting of immovable property from the
domain of value added tax. In this regard, he has placed reliance on the
decision of the House of Lords in Commissioners of Custom and
Excise v. Sinclair Collis Limited (2001) UKHL 30 (7th June, 2001).
12. The learned senior counsel has further drawn inspiration from
the observations of the European Union Court in Belgium v. Temco
Europe SA [Case C-284/03 of 18.11.2004] wherein it has been held
that if the leasing/ letting of immovable property is a passive
transaction, then it would be exempted.
13. Mr. S. Ganesh, learned senior counsel, analysing the anatomy of
the provisions under Section 65, submitted that among the taxable
services, the taxable service in Sub-clause (zzzz), to which the
constitutional challenge in these proceedings relates, was initially
inserted by the Finance Act of 2007 with effect from 1st June 2007 and
the taxable service was defined to mean "any service provided or to be
provided to any person, by any other person in relation to renting of
immovable property for use in the course or furtherance of business or
commerce" and, hence, in the absence of service component, service
tax cannot be imposed. Emphasis has been laid on the expression
"renting of immovable property" as defined in Clause (90)(a) of
Section 65 of the Act.
14. It is his submission that letting of immovable property is merely
a property transaction and does not involve remotely any value
addition whatsoever which results from the rendering of the service
and therefore, the service tax is not leviable. He has heavily relied on
the decision rendered in All India Federation of Tax Practitioners
(supra) wherein the Apex Court has noted that a service tax is a tax on
value addition made by rendering of services.
15. The learned senior counsel further submitted that the impugned
levy of tax is nothing but a tax on the letting of immovable property
and the same is squarely covered by Entry 49 of List II and
consequently, the Parliament has no legislative competence to levy the
said tax under residuary Entry 97 of List I of the Seventh Schedule.
The service tax imposed by the Parliament on renting of immovable
property, it is urged, takes account of the user of the land or building
and hence, it is a tax which the State Legislatures alone can impose
under Entry 49 of List II. The learned senior counsel has commended
us to the decisions in D.G. Gose Co. (Agents Pvt. Ltd.) vs. State of
Kerala, (1980) 2 SCC 410 and Goodricke Group Ltd. v. State of West
Bengal, (1995) Supp. 1 SCC 707 to highlight that Entry 49 of List II
has been endowed with wide range of coverage and interpretation.
16. It is further canvassed by the learned senior counsel that under
the constitutional scheme, a single transaction or taxable event cannot
be taxed by both the Parliament and the State Legislature. It is argued
by him that there exists a meticulous separation of all the taxing
powers of the Parliament as compared to the taxing powers of the State
in order to avoid any kind of overlapping whatsoever between the two.
It is proponed that it has been held by the Apex Court that the very
same transaction cannot be subjected to tax by both the Parliament and
the State Legislature.
17. Questioning the levy of service tax on renting of immovable
property with retrospective effect from 1st June 2007, he submitted that
there can be no retrospective authorization of penal action to be taken
against assessees including, in particular, the imposition of penalties or
penal interest and prosecution, and that such retrospective imposition
of penal action would be unconstitutional in the light of the decision in
Star India Pvt. Ltd v. CCE, (2005) 7 SCC 203.
18. Mr. S.K. Bagaria, learned senior counsel, relying on All India
Federation of Tax Practitioners (supra) and Association of Leasing
and Financial Service Companies vs. Union of India and ors., (2011)
2 SCC 352, delineated at the outset the essential features of service tax
to mean that it is leviable only on services provided by the service
provider to its customer and it is fundamentally and inseparably
connected with the value addition. The learned senior counsel has
further submitted that renting of immovable property for use in the
course or furtherance of business or commerce by itself does not entail
any value addition and, therefore, cannot be regarded as a service.
19. The learned senior counsel has placed reliance on Hansraj &
Sons v. State of Jammu & Kashmir, (2002) 6 SCC 227, Member-
Secretary, Andhra Pradesh State Board for Prevention and Control
of Water Pollution v. Andhra Pradesh Rayons Ltd., (1989) 1 SCC 44,
Saraswati Sugar Mills v. Haryana State Board, (1992) 1 SCC 418
and Commissioner of Gift Tax, Madras v. N.S. Getty Chettiar, (1971)
2 SCC 741 to reinforce his submission that the definition of „taxable
service‟ is a matter which relates to chargeability and the charging
provisions have to be strictly construed.
20. It is urged by Mr. Bagaria that the constitutional concepts
relating to service tax as laid down by the Apex Court cannot be
whittled or nullified by a statutory amendment. Elaborating further, it
is put forth that a transaction relating to mere renting of immovable
property could never be termed as rendering of any service giving rise
to a value addition as the elements of service as well as value addition
are completely absent.
21. The learned senior counsel, placing reliance on Puran Singh
Sahni v. Sundari Bhagwandas Kripalani, (1991) 2 SCC 180, has
submitted that in Section 65(90a), the expression „renting of
immovable property‟ has been defined to include renting, letting,
leasing, licensing or other similar arrangements of immovable property
and all these activities of immovable property are recognized in law as
transfer of right in land/buildings by the lessor to the lessee and the
transaction is recognized as a transfer of property from the lessor to the
lessee under Section 105 of the Transfer of Property Act, 1882 and the
instrument effectuating such a transfer defined as conveyance is liable
to stamp duty under the provisions of the Indian Stamp Act, 1899. The
learned senior counsel has placed reliance on Ajoy Kumar Mukherjee
(supra) Goodricke Group Ltd. (supra) and International Tourist
Corporation v. State of Haryana, (1981) 2 SCC 318 and submitted
that any tax levied on such transaction, in pith and substance, is
nothing else but a tax on land/building under Entry 49 of List II of the
Seventh Schedule of the Constitution as such a transaction involves
transfer of right to enjoy such property and has direct nexus with the
land/building in question. Therefore, the Parliament, by merely giving
it a label of service, cannot subject it to service tax as such an exercise
is nothing but a colourable exercise of power.
22. Mr. A.S. Chandhiok, learned Additional Solicitor General,
countering the aforesaid submissions, has contended that by virtue of
the amendment incorporated by the Finance Act, 2010, the levy is on
the very activity of renting, leasing, letting, licensing of the immovable
property or permitting the immovable property through any
arrangement whatsoever to be used in the course or furtherance of
business or commerce and for the said purpose, transfer of right, title
and interest is totally irrelevant. It is his further submission that the
activity which is sought to be taxed under Section 65(105)(zzzz) is
allowing/permitting the usage of immovable property in the course and
furtherance of business which is neither covered under the Transfer of
Property Act nor under the Indian Easements Act and by no means is a
tax on land and building to come within the ambit and sweep of Entry
49 of List II of the Seventh Schedule of the Constitution. Combating
the submission as regards the legislative competence of the Parliament,
the learned Addition Solicitor General has submitted that in order to
take aid of Entry 49 of List II, certain conditions precedent are to be
satisfied such as the tax ought to be a direct tax on land and building,
and the land or building is to be taxed as units of taxation as it has no
concern with ownership, division of interest or occupation. That apart,
submits Mr. Chandhiok, it does not cover indirect tax on land and
building and as a natural corollary, ousts tax on income from land or
building from its purview. It is canvassed by him that the tax in the
present case is an indirect tax and the impost is on the activity and not
on renting or leasing. It is canvassed by him that the subject of tax or
the event of taxation is different from the measure of levy and the
mode of assessment and the latter cannot be taken into consideration
for determining the nature and character of tax.
23. Mr. Chandhiok has urged that Kesoram's case (supra) could not
be relied upon to justify the impugned levy under Entry 49 of List II
inasmuch as the levy therein was a direct tax on land and the measure
of the said direct tax on land was classified on the basis of different
users of land at different rates. It is submitted by him that the issue to
be dealt with therein was whether the tax was on land falling under List
II or on the Coal Mines or Tea Estate which is a subject matter of List
I. The court interpreted the said provisions and concluded that the tax
under the said provisions would remain tax on land irrespective of use
to which it is put because classification of land in different identifiable
groups was only for the purpose of taxation. Distinguishing the
decision in Ajoy Kumar (supra), the learned Additional Solicitor
General submitted that in the said case, the levy was directly on land
itself but was to be measured/recovered when it was being used as
market and the Apex Court had concluded that the tax was on land but
the charge arose only when the land was used for a market, whereas in
the present case, the levy is not on land but on the activity of renting,
leasing, letting, licensing, allowing and permitting the usage of
immovable property in the course or furtherance of business or
commerce.
24. The learned Additional Solicitor General contended that a tax on
land is to be measured with reference to its income and nothing else
and in the case of DG Fose and Co.(Agents) Pvt. Ltd. (supra), tax was
levied directly on building and was measured on the basis of annual
value which was challenged on the ground that the State Legislature
had no competence because only the Union had the power to levy tax
on annual capital value which was rejected by the court by reiterating
the law that the legislature was free to take a decision as to the measure
of tax but the same is not the situation in the case at hand. The learned
ASG, deriving strength from the decisions in Tamil Nadu Kalyana
Mandapam Assn. (supra); All India Federation of Tax Practitioners
and Ors. (supra) and Association of Leasing and Financial Service
Companies (supra), also submitted that levy of service tax under
Article 248(2) read with Entry 97 of List I is permissible.
25. On the nature of service tax, the learned ASG submitted that
besides the fact that service is inherent under Section 65(90a) and
Section 65(105)(zzzz), there is value addition and the whole activity
has an inseparable nexus with commercial activity. Emphasizing on
the concept of Value Added Tax (VAT), it is submitted by him that
VAT was based on the additional services and the related VAT liability
of the service provider can be calculated by deducting input tax credit
from the tax collected on the services making it a multi point tax on
value addition which is collected at different stages of providing
services with provision for set off for the tax paid at the previous stage
/ tax on inputs. In this regard, the learned ASG has referred to the
statutory provisions of the Central Excise Act, 1944, the Finance Act,
1994 and the CENVAT Credit Rules, 2004, Dr. Raja J. Chelliah
Committee‟s report on tax reforms as well as the decision in All India
Federation of Tax Practitioners and Ors. (supra) wherein the
Supreme Court has described service tax as VAT.
26. The learned ASG, justifying the retrospective operation of the
impugned provisions, in his final lap, submitted that only the
retrospective operation of Section 65(105)(zzzz) had been challenged
and that too as an alternative relief. It is submitted that by virtue of
Section 76(a)(6)(h) of the Finance Act, 2010, Section 65(105)(zzzz)
had been amended to clarify the intent of the legislature w.e.f.
11.5.2007 and further Section 77 of the Finance Act, 2010 validated all
actions. Referring to the first Home Solutions case (supra), the learned
ASG submitted that the court, in the said case, had not quashed or
invalidated the substantive provisions of law which still remains intact.
Further, relying on the decisions in Empire Industries Limited and
Ors. v. Union of India and Ors., (1985) 3 SCC 314, Pyare Lal
Sharma Vs Managing Director and Ors., (1989) 3 SCC 488 and A.
Manjula Bhashini and Ors. v. The Managing Director, A.P.
Women's Cooperative Finance Corporation Ltd. and Anr., (2009) 8
SCC 431, it is submitted that the legislature has the power to amend
the law with retrospective effect.
27. Pressing into service the decision in Shiv Dutt Rai Fateh Chand
and Ors. v. Union of India and Anr., (1983) 3 SCC 529 wherein the
Supreme Court had upheld the levy of penalty in the year 1996 with
effect from 1957, the learned ASG submitted that penalty can also be
levied retrospectively.
28. In response to the aforesaid submission, the petitioners in their
rejoinder, citing the decision in Governor-General in Council v.
Province of Madras, AIR 1945 PC 98 which was followed by the
Supreme Court in R.R. Engineering Co. v. Zilla Parishad, (1980) 3
SCC 330, have submitted that the name given to a tax is immaterial
and has no impact or bearing on the issue of its constitutional validity.
It is also submitted that the mere fact that Section 65 (105) (zzzz) of
the Finance Act regarded the letting of immovable property for
commercial purpose as a service and proceeded to levy service tax on
the same does not lead to the conclusion that the said tax was in reality
and in substance a service tax. The issue of constitutional validity of a
tax/levy depends on its essential nature and not merely its
nomenclature.
29. It is further reiterated that it is a settled legal position that the
legal fiction contained in the provisions of law enacted by the
Legislature does not confer any legislative competence upon the
Legislature. In this context, the decisions in State of Madras v.
Gannon Dunkerley & Co. Ltd., (1959) SCR 379, Bhopal Sugar
Industries v. Sales Tax Officer, (1964) 1 SCR 481, Twentieth
Century Finance Co. Ltd. v. State of Maharashtra, (2000) 6 SCC 12;
All India Federation of Tax Practitioner's case (supra) Tamil Nadu
Kalyanmandapam Association (supra) and Association of Leasing
and Financial Service Companies (supra) have been pressed into
service.
30. To appreciate the contentions raised at the Bar, first, we shall
advert to the schematic concept pertaining to the "fields of legislation".
In Raja Jagannath Baksh Singh v. State of Uttar Pradesh and
another, AIR 1962 SC 1563, while dealing with Articles 245 and 246,
it has been held that it is an elementary cardinal rule of interpretation
that the words used in the Constitution which confer legislative power
must receive the most liberal construction and if they are words of
wide amplitude, they must be interpreted so as to give effect to that
amplitude. It would be out of place to put a narrow or restricted
construction on words of wide amplitude in the Constitution. A general
word used in an entry must be construed to extend to all ancillary or
subsidiary matters which can fairly and reasonably be held to be
included in it.
31. In Union of India and others v. Shah Goverdhan L. Kabra
Teachers College, AIR 2002 SC 3675, it has been laid down that the
power to legislate is engrafted under Article 246 of the Constitution
and the various entries in the three lists of the Seventh Schedule are the
"fields of legislation". The different entries being legislative heads are
all of enabling character and are designed to define and delimit the
respective areas of legislative competence of the Union and the State
Legislature. They neither impose any restrictions on the legislative
powers nor prescribe any duty for the exercise of legislative power in
any particular manner. It has been a cardinal principle of construction
that the language of the entries should be given the widest scope by
which their meaning is fairly capable of and while interpreting an entry
of any List, it would not be reasonable to import any limitation therein.
The rule of widest construction, however, would not enable the
legislature to make a law relating to a matter which has no rational
connection with the subject matter of an entry. Their Lordships have
further opined that it is a well-settled principle that the entries in the
different lists should be read together without giving a narrow meaning
to any of them. The power of the Parliament as well as the State
legislature is expressed in precise and definite terms. While an entry is
to be given its widest meaning, it cannot be so interpreted as to
override another entry or make another entry meaningless and in case
of an apparent conflict between different entries, it is the duty of the
Court to reconcile them. When it appears to the Court that there is
apparent overlapping between the two entries, the doctrine of "pith and
substance" has to be applied to find out the true nature of a legislation
and the entry within which it would fall. In case of conflict between the
entries in List I and List II, the same has to be decided by application
of the principle of "pith and substance". The doctrine of "pith and
substance" means that if an enactment substantially falls within the
powers expressly conferred by the Constitution upon the legislature
which enacted it, it cannot be held to be invalid merely because it
incidentally encroaches on matters assigned to another legislature.
When a law is impugned as being ultra-vires of the legislative
competence, what is required to be ascertained is the true character of
the legislation. If, on such an examination, it is found that the
legislation is in substance one on a matter assigned to the legislature,
then it must be held to be valid in its entirety even though it might
incidentally trench on matters which are beyond its competence. In
order to examine the true character of the enactment, the entire Act, its
object and scope and effect is required to be gone into. The question of
invasion into the territory of another legislation is to be determined not
by degree but by substance.
32. In Dharam Dutta and others v. Union of India and others, AIR
2004 SC 1295, it has been held thus:
"72. The various entries in the three Lists of the
Seventh Schedule are legislative heads defining the
fields of legislation and should be liberally and
widely interpreted. Not only the main matter but
also any incidental and ancillary matters are
available to be included within the field of the
entry. The settled rules of interpretation governing
the entries do not countenance any narrow and
pedantic interpretation. The judicial opinion is for
giving a large and liberal interpretation to the
scope of the entries. Suffice it to quote from the
opinion of the judicial Committee of the Privy
Council in British Coal Corporation v. The King,
AIR 1935 PC 158, 162 - that in interpreting a
constituent or organic statute indeed that
construction which is most beneficial to the widest
possible amplitude of its powers must be adopted.
The Federal Court in the United Provinces v. Atiqa
Begum , AIR 1941 FC 16, 25 observed that none
of the items in the lists is to be read in a narrow or
restricted sense and all ancillary or subsidiary
matters referable to the words used in the entry and
which can fairly and reasonably be said to be
comprehended therein are to be read in the entry.
This approach has been countenanced in several
decisions of this Court. (To wit, see Navinchandra
Mafatlal v. CIT Bombay City (1955) 1 SCR 829,
836 : AIR 1955 SC 58 at p.61; Sri Ram Ram
Narain Medhi v. State of Bombay , 1959 Supp (1)
SCR 989 : AIR 1959 SC 459)"
33. In State of Andhra Pradesh v. K. Purushotham Reddy and
others, AIR 2003 SC 1956, it has been held that the conflict in the
legislative competence of the Parliament and the State Legislatures
having regard to Article 246 of the Constitution of India must be
viewed in the light of the settled position of law which, in no uncertain
terms, lays down that each Entry has to be interpreted in a broad
manner. Both the Parliamentary legislation as also the State legislation
must be considered in such a manner as to uphold both of them and
only in a case where it is found that both cannot co-exist, the State Act
may be declared ultra vires. Clause I of Article 246 of the Constitution
of India does not provide for the competence of the Parliament or the
State Legislatures as is ordinarily understood but merely provides for
the respective legislative fields. Furthermore, the Courts should
proceed to construe a statute with a view to uphold its constitutionality.
34. In Welfare Association, A.R.P., Maharashtra and another v.
Ranjit P. Gohil and others, (2003) 9 SCC 358, while dealing with the
concept of colourable legislation, it has been held that the said doctrine
fundamentally dealt with the question of competency of a particular
legislature to enact a particular law. If the legislature is competent to
pass a particular law, the motives which impelled it to act are really
irrelevant. On the other hand, if the legislature lacks competency, the
question of motives does not arise at all. Whether a statute is
constitutional or not is thus always a question of power (vide Cooley's
Constitutional Limitations, Vol.1, p.379). The crucial question to be
asked is whether there has been a transgression of legislative authority
as conferred by the Constitution which is the source of all powers as
also the separation of powers. A legislative transgression may be
patent, manifest or direct, or may also be disguised, covert and indirect.
It is to this latter class of cases that the expression "colourable
legislation" has been applied in certain judicial pronouncements. The
expression means that although apparently a legislature, in passing a
statute, purports to act within the limits of its powers, yet in substance
and in reality, it transgresses those powers, the transgression being
veiled by what appears, on a proper examination, to be a mere pretence
or disguise. The discerning test is to find out the substance of the Act
and not merely the form or outward appearance. If the subject-matter
in substance is something which is beyond the legislative power, the
form in which the law is clothed would not save it from condemnation.
The constitutional prohibitions cannot be allowed to be violated by
employing indirect methods. To test the true nature and character of
the challenged legislation, the investigation by the court should be
directed towards examining (i) the effect of the legislation, and (ii) its
object, purpose or design. In the said decision, it has been opined that
while interpreting and construing, an effort ought to be made to make
the entries effective instead of rendering them otiose. It is the duty of
the court to examine the pith and substance of the Act to find out
whether the matter substantially falls under a particular entry in a list
or not.
35. In Harakchand Ratanchand Banthia & Ors. v. Union of India
& Ors., AIR 1970 SC 1453, it has been held as follows:
"6. ....The entries in the three Lists are only
legislative heads or fields of legislation; they
demarcate the area over which the appropriate
legislatures can operate. It is well established that
the widest amplitude should be given to the
language of the entries. But some of the entries in
the different lists or in the same list may overlap or
may appear to be in direct conflict with each other.
It is then the duty of this Court to reconcile the
entries and bring about a harmonious construction.
In in re The Central Provinces and Berar Sales of
Motor Spirit and Lubricants Taxation Act, 1938,
1939 FCR 18 = (AIR 1939 FC 1), Sir Maurice
Gwyer proceeded to state:
"Only in the Indian Constitution Act can the
particular problem arise which is now under
consideration; and an endeavour must be made
to solve it, as the Judicial Committee have said
by having recourse to the context and scheme of
the Act, and a reconciliation attempted between
two apparently conflicting jurisdictions by
reading the two entries together and by
interpreting, and, where necessary, modifying,
the language of the one by that of the other. If
indeed such a reconciliation should prove
impossible, then, and only then, will the non
obstante clause operate and the federal power
prevail; for the clause ought to be regarded as a
last resource, a witness to the imperfections of
human expression and the fallibility of legal
draftsmanship."
After so stating, their Lordships further proceeded to state as
follows:
"7. ....It is well settled that the entries in the
three lists are only legislative heads or fields of
legislation and they demarcate the area over
which the appropriate legislature can operate.
The legislative entries must be given a large and
liberal interpretation, the reason being that the
allocation of subjects to the list is not by way of
scientific or logical definition but is a mere
enumeration of broad and comprehensive
categories....."
36. We have referred to the aforesaid decisions only to understand
the purpose behind the various entries relating to legislation by the
Parliament as well as the State Legislature, the field of legislation, the
doctrine of "pith and substance", adoption of a non-pedantic approach,
interpretation on a wider spectrum, the true character of the enactment
by paving the path of real substance, and the demarcation of the areas
of legislation, incidental and ancillary encroachment, design of the
statute and substantial entrenchment.
37. Presently, we shall proceed to refer to certain authorities which
pertain to the imposition of tax on land as it is imperative to scan and
understand what is exactly meant by "taxes on lands and buildings".
Entry 49 of List II reads as follows:
"49. Taxes on lands and buildings.
If therefore a tax is directly imposed on
"buildings", it will bear a direct relation to the
buildings owned by the assessee. It may be that
the building owned by an assessee may be a
component of his total assets, but a tax under
Entry 86 will not bear any direct or definable
relation to his building. A tax on "buildings" is
therefore a direct tax on the assessee‟s buildings
as such, and is not a personal tax without
reference to any particular property.
38. In Ajoy Kumar Mukherjee (supra), the Constitution Bench,
placing reliance on Ralla Ram v. Province of East Punjab, AIR 1949
FC 81, opined as follows:
"It is well-settled that the entries in the three
legislative lists have to be interpreted in their
widest amplitude and, therefore, if a tax can
reasonably be held to be a tax on land it will come
within entry 49. Further it is equally well-settled
that tax on land may be based on the annual value
of the land and would still be a tax on land and
would not be beyond the competence of the State
legislature on the ground that it is a tax on income.
[see Ralla Ram v. province of East Punjab, 1948
FCR 207 : (AIR 1949 FC 81)]. It follows,
therefore, that the use to which the land is put can
be taken into account in imposing a tax on it within
the meaning of entry 49 of List II, for the annual
value of land which can certainly be taken into
account in imposing a tax for the purpose of this
entry would necessarily depend upon the use to
which the land is put."
39. In Sudhir Chandra Nawn v. Wealth-tax Officer, Calcutta and
others, AIR 1969 SC 59, it was held that the power to levy tax on
lands and buildings under Entry 49 of List II did not trench upon a
power conferred on the Parliament by Entry 88 of List I and, therefore,
the enactment of the Wealth Tax Act by the Parliament was not ultra
vires. In the said case, it has been opined as follows:
"...But the legislative authority of Parliament is
not determined by visualizing the possibility of
exceptional cases of taxes under two different
heads operating similarly on tax payers. Again
entry 49 List II of the Seventh Schedule
contemplates the levy of tax on lands and buildings
or both as units. It is normally not concerned with
the division of interest or ownership in the units of
lands or buildings which are brought to tax. Tax on
lands and buildings is directly imposed on lands
and buildings, and bears a definite relation to it.
Tax on the capital value of assets bears no
definable relation to lands and buildings which
may form a component of the total assets of the
assessee. By legislation in exercise of power under
entry 86 List I tax is contemplated to be levied on
the value of the assets. For the purpose of levying
tax under entry 49 List II the State Legislature may
adopt for determining the incidence of tax the
annual or the capital value of the lands and
buildings. But the adoption of the annual or capital
value of lands and buildings for determining tax
liability will not, in our judgment, make the fields
of legislation under the two entries overlapping."
40. In The Assistant Commissioner of Urban Land Tax and others
v. The Buckingham and Carnatic Co. Ltd., Etc., 1969 (2) SCC 55,
the challenge was to the Madras Urban Land Tax Act, 1966. A
contention was raised that the impunged Act fell in Schedule VII, List
I, Entry 86 as the impugned Act was, both in form and substance,
taxation of capital and, hence, beyond the competence of the State
Legislature. In that context, their Lordships opined that the legislative
entries must be given a large and liberal interpretation, the reason
being that the allocation of the subjects to the list is not by way of
scientific or logical definition but by way of a mere sixplex enumeratio
of broad categories and, therefore, there is no conflict between Entry
86 of List I and Entry 49 of List II as the basic taxation under the two
entries is quite distinct. Their Lordships proceeded to state that in
Entry 86 of List I, the basis of taxation is the capital value of the asset
and it is not a tax directly on the capital value of the assets of
individuals and companies on the valuation data and, therefore, the tax
is not imposed on the components of the assets of the assessee. Their
Lordships further stated that the tax under Entry 86 proceeds on the
principle of aggregation and is imposed on the totality of the value of
all the assets. After so stating, their Lordships proceeded to state as
follows:
"...It is imposed on the total assets which the
assessee owns and in determining the net wealth
not only the encumbrances specifically charged
against any item of asset, but the general liability
of the assessee to pay his debts and to discharge
his lawful obligations have to be taken into
account. In certain exceptional cases, where a
person owes no debts and is under no enforceable
obligation to discharge any liability out of his
assets it may be possible to break up the tax which
is leviable on the total assets into components and
attribute a component to lands and buildings
owned by an assessee. In such a case, the
component out of the total tax attributable to lands
and buildings may in the matter of computation
bear similarity to a tax on lands and buildings
levied on the capital or annual value under Entry
49, List II. But in a normal case a tax on capital
value of assets bears no definable relation to lands
and buildings which may or may not form a
component of the total assets of the assessee. But
Entry 49 of List II, contemplates a levy of tax on
lands and buildings or both as units. It is not
concerned with the division of interest or
ownership in the units of lands or buildings which
are brought to tax. Tax on lands and buildings, is
directly imposed on lands and buildings and bears
a definite relation to it. Tax on the capital value of
assets bears no definable relation to lands and
buildings which may form a component of the total
assets of the assessee. By legislation in exercise of
power under Entry 86, List I tax is contemplated to
be levied on the value of the assets. For the
purpose of levying tax under Entry 49, List II the
State Legislature may adopt for determining the
incidence of tax the annual or the capital value of
the lands and buildings. But the adoption of the
annual or capital value of lands and buildings for
determining tax liability will not make the fields of
legislation under the two entries overlapping. The
two taxes are entirely different in their basic
concept and fall on different subject-matters."
[Emphasis added]
41. In The Second Gift Tax Officer, Mangalore v. D.H. Hazareth,
AIR 1970 SC 999, the Apex Court, while dealing with the impost or
tax on gifts of lands and buildings, referred to Article 248 which
("imposition of" or "impost of") contains declaration of the residuary
powers of the Legislature. Their Lordships observed that the
Parliament has exclusive power to make any law in respect of any
matter not enumerated in the Concurrent List or State List and the
same includes the power of making any law imposing a tax not
mentioned in either of those lists and to avoid any kind of doubt, Entry
97 has been included in the Union List. After so stating, their
Lordships proceeded to lay down as follows:
"5. It will, therefore, be seen that the sovereignty
of Parliament and the Legislatures is a sovereignty
of enumerated entries, but within the ambit of an
entry, the exercise of power is as plenary as any
legislature can possess, subject, of course, to the
limitations arising from the Fundamental Rights.
The entries themselves do not follow any logical
classification or dichotomy. As was said in State of
Rajasthan v. S. Chawla, (1959) Supp 1 SCR 904 =
(AIR 1959 SC 544) the entries in the lists must be
regarded as enumeratio simplex of broad categories.
Since they are likely to overlap occasionally, it is
usual to examine the pith and substance of
legislation with a view to determining to which
entry they can be substantially related, a slight
connection with another entry in another list
notwithstanding. Therefore, to find out whether a
piece of legislation falls within any entry, its true
nature and character must be in respect to that
particular entry. The entries must of course receive
a large and liberal interpretation because the few
words of the entry are intended to confer vast and
plenary powers. If, however, no entry in any of the
three lists covers it, then it must be regarded as a
matter not enumerated in any of the three lists.
Then it belongs exclusively to Parliament under
Entry 97 of the Union List as a topic of legislation."
Eventually, in the said case, it was held that gift tax is not a tax
on land and building as such which is a tax resting upon general
ownership of lands and buildings but is a levy upon a particular act
which is transmission of title by gift. The two are not the same thing
and the incidence of tax is not the same. The Apex Court ruled that
since Entry 49 of the State List contemplates a tax directly levied by
reason of general ownership of lands and buildings, it cannot include
gift tax as levied by the Parliament and, there being no other entry
which covers a gift tax, the residuary power of the Parliament could be
exercised to enact the law.
42. In D.G. Bose & Co. (Agents) Pvt. Ltd. (supra), the constitutional
validity of the Kerala Building Tax Act, 1975 was challenged before
the High Court of Kerala which upheld the validity of the Act. The
principal contention that was canvassed before the Apex Court was
that the subject matter of the Act being a tax on building is a tax on the
capital value of the asset of an individual or a company and falls within
the scope of Entry 86 of List I of the Seventh Schedule of the
Constitution and not under Entry 49 of List II and, therefore, it travels
beyond the legislative competence of the State Legislature. Their
Lordships referred to the concept of tax as defined under Clause (28)
of Article 366 of the Constitution of India, adverted to Entry 86 and
thereafter, while dealing with Entry 49, proceeded to state as follows:
"8. On the other hand, Entry 49 of List II is as
follows:
49. Taxes on lands and buildings.
If therefore a tax is directly imposed on
"buildings", it will bear a direct relation to the
buildings owned by the assessee. It may be that
the building owned by an assessee may be a
component of his total assets, but a tax under
Entry 86 will not bear any direct or definable
relation to his building. A tax on "buildings" is
therefore a direct tax on the assessee‟s buildings
as such, and is not a personal tax without
reference to any particular property.
9. It has to be appreciated that in almost all
cases, a tax has two elements which have been
precisely stated by Seervai in his "Constitutional
Law of India", second edition, Volume 2, as
follows, as page 1258:
Another principle for reconciling apparently
conflicting tax entries follows from the fact that
a tax has two elements: the person, thing or
activity on which the tax is imposed, and the
amount of the tax. The amount may be
measured in many ways; but decided cases
establish a clear distinction between the subject-
matter of a tax and the standard by which the
amount of tax is measured. These two elements
are described as the subject of a tax and the
measure of a tax.
It may well be that one‟s building may
imperceptibly be the subject-matter of tax, say the
wealth tax, as a component of his assets, under
Entry 86 (List I); and it may also be subjected to
tax, say a direct tax under Entry 46 (sic 49) (List II),
but as the two taxes are separate and distinct
imposts, they cannot be said to overlap each other,
and would be within the competence of the
legislatures concerned."
After so stating, their Lordships referred to the decisions in
Sudhir Chandra Nawn (supra) and Buckingham and Carnauc Co.
Ltd. (supra) and eventually held that the State Legislature was
competent to tax the building under Entry 49 of List II.
43. In Union of India v. Harbhajan Singh Dhillon, AIR 1972 SC
1061, while dealing with the requisites of a tax under Entry 49 of List
II, their Lordships have ruled thus:
"65. The requisites of a tax under entry 49, List II
may be summarised thus:
(1) It must be a tax on units, that is lands and
buildings separately as units.
(2) The tax cannot be a tax on totality, i.e. it is
not a composite tax on the value of all lands and
buildings.
(3) The tax is not concerned with the division of
interest in the building or land. In other words, it is
not concerned whether one person owns or occupies
it or two or more persons own or occupy it.
66. In short, the tax under entry 49 List II is not a
personal tax but a tax on property."
44. In Kesoram Industries Ltd. & Ors., (supra), the Constitution
Bench, after dwelling upon the principle of interpretation relating to
Articles 246, 265 and the Seventh Schedule of the Constitution and the
scheme and nature of the power to legislate, per majority, opined that if
any power to tax is clearly mentioned in List II, the same would not be
available to be exercised by the Parliament based on the presumption
of residuary power. In the said case, while dealing with the concept of
land in terms of Entry 49, List II, it has been stated that it has wide
connotation and the land remains land though it may be subject to
different uses. The nature of use of the land would not enable a piece
of land to be taken out of the meaning of land itself. It has been ruled
therein that to be a tax on land, the levy must have some direct and
definite relationship with the land and so long as the tax is a tax on
land by bearing such relationship with the land, it is open to the
legislature, for the purpose of levying tax, to adopt any one of the well
known modes of determining the value of the land such as annual or
capital value of the land or its productivity. It has been further held
that the methodology adopted, having an indirect relationship with the
land, would not alter the nature of the tax as being one on the land.
The Constitution Bench has also laid emphasis on the aspect that the
primary object and the essential purpose of the legislation must be
distinguished from its ultimate or incidental results or consequences for
determining the character of the levy. A levy essentially in the nature
of a tax and within the power of the State Legislature cannot be
annulled as unconstitutional merely because it may have an effect on
the price of the commodity. A State legislation which makes
provisions for levying a cess, whether by way of tax to augment the
revenue resources of the State or by way of fee to render services as
quid pro quo but without any intention of regulating and controlling the
subject of the levy, cannot be said to have encroached upon the field of
regulation and control belonging to the Central Government by reason
of the incidence of the levy being permissible to be passed on to the
buyer or consumer and thereby affecting the price of the commodity or
goods. Be it noted, in the said case, their Lordships were dealing with
a case whereby a Division Bench of Calcutta High Court had struck
down certain levies by way of cess on coal as unconstitutional for want
of legislative competence of the State legislature.
45. In Lt. Col. Sawai Bhawani Singh and others v. State of
Rajasthan and others, (1996) 3 SCC 105, while dealing with wealth
tax under Entry 49 of List II, their Lordships have held that in pith and
substance, it was a tax on property and not a personal tax. As per
Entry 49 of List II, the State Legislature is competent to impose tax
either on lands or on buildings or on both. A land or building or both of
a person may be subjected to direct tax by the State Legislature under
Entry 49 of List II and may also be the subject-matter of direct tax as a
component of his total assets, like wealth tax by the Union Legislature
as mentioned in Entry 86 of List I. These two taxes are separate and
distinct in nature and it cannot be said that there is any overlapping or
that the State Legislature is not competent to levy such tax on lands
and buildings merely on the ground that they have been subjected to
another tax as a component of the total assets of the person concerned.
46. From the aforesaid enunciation of law in various authorities, the
following principles can be culled out:
(a) Under Entry 49 of List II, the State Legislature is competent to
impose tax either on lands or buildings or on both. It is basically
a tax on property.
(b) Entry 49 of List II of the Seventh Schedule contemplates levy of
tax on lands and buildings or both as units.
(c) The levy of tax on lands and buildings is not concerned with the
division of interest or ownership in the units of lands or
buildings which are brought to tax. Tax on lands and buildings
is directly imposed on lands and buildings and bears a definite
relation to it.
(d) The tax on land and building is a fundamental tax resting upon
the general ownership of the lands and buildings but would not
include a particular act like a transmission of title by gift.
(e) There is a distinction between a direct tax on the assessee‟s
building as such and a personal tax.
(f) There is a distinction between the elements of tax, namely, the
person, thing or activity on which the tax is imposed and the
amount of tax.
(g) A tax may imperceptibly be the subject-matter of tax like wealth
tax and may be subjected to tax as a direct tax under Entry 49 of
List II.
(h) To be a tax on land, the levy must have some direct and definite
relationship with the land and as long as the tax is a tax on land
by bearing such relationship with the land, it is open to the State
legislature, for the purpose of levying tax, to adopt any one of
the well known modes of determining the value of the land such
as annual or capital value of the land or its productivity. The
methodology adopted, having an indirect relationship with the
land, would not alter the nature of the tax as being one on land.
(i) While dealing with the tax on the subject, thing or activity, the
primary object and the essential purpose of the legislation must
be distinguished from its ultimate or incidental results or
consequences for determining the character of the levy.
(j) If a tax is imposed on any transaction in the market by persons
who come there for business, it is not imposed on land but on the
business involved therein.
(k) A tax levied on activity or service rendered having nexus with
land or building would not come within the compartment of tax
on land and building.
Be it noted, we have culled out the aforesaid principles for the
sake of clarity and convenience.
47. The learned senior counsel appearing for the petitioners would
contend that the levy of service tax on renting or leasing of immovable
property or having similar arrangement of immovable property for use
in the course of furtherance of business or commerce is fundamentally
a tax on the land which comes squarely within the legislative
competence of the State Legislature. As has been noted hereinbefore,
it has been vehemently urged that by introducing the doctrine of "pith
and substance" or "aspect doctrine", it cannot be brought under Entry
97 of List I under the residuary power of the Parliament. That apart, it
has been highlighted that there is no service rendered when the
premises are let out and it is a direct tax on land and, therefore, it is a
colourable piece of legislation by the Parliament and there is a direct
entrenchment. Emphasis has been laid on the first Home Solutions
case (supra) to bolster the submission that in the absence of any value
addition, which is the essential and fundamental component of service
tax, the levy is unconstitutional. Regard being had to the aforesaid
facets, we think it seemly to advert to the principles that have been laid
down by the Apex Court pertaining to service tax in various decisions.
48. In T.N. Kalyana Mandapam Association (supra), the assail was
to the constitutional validity of Sections 66, 67(o) of the Finance Act,
1994 and Rule 2(1)(d)(ix) of the Service Tax Rules, 1994 and other
provisions relating to Kalyana Mandapams and Mandap keepers. Sub-
sections 65(8), (19) and (20) of the Finance Act, 1994 defined
„caterer‟, „mandap‟ and „mandap keepers‟. Section 65(41)(p) defines
„taxable service‟ to mean any service provided to a client by a mandap
keeper in relation to the use of a mandap in any manner including the
facilities provided to the client in relation to such use and also the
services, if any, rendered as a caterer. The challenge to the
constitutional validity before the High Court had met with failure.
Before the Apex Court, it was the principal contention that the service
tax on the mandap keepers is a colourable legislation and
unconstitutional as the said tax is not on services but is, in pith and
substance, only a "tax on goods" and/or land and the provisions are not
within the legislative competence of the Union of India but within the
competence of the State Legislature. Their Lordships posed six
questions, one of which being relevant is reproduced hereinbelow:
"Was the High Court correct in not construing the
specific entries in List II viz. Entries 18, 49 and 54
by giving the widest amplitude, particularly when
the Union was seeking to justify the levy under the
residuary Entry 97 in List I of the Seventh Schedule
of the Constitution?"
Answering the said question, their Lordships opined that service
tax is imposed by the Parliament pursuant to the residuary power under
Entry 97 of List I read with Article 246 of the Constitution. Thereafter,
their Lordships proceeded to state as follows:
"46. It is well settled that the measure of taxation
cannot affect the nature of taxation and, therefore,
the fact that service tax is levied as a percentage of
the gross charges for catering cannot alter or affect
the legislative competence of Parliament in the
matter.
xxx xxx xxx
51. Taxable services, therefore, could include the
mere providing of premises on a temporary basis
for organising any official, social or business
functions, but would also include other facilities
supplied in relation thereto. No distinction from
restaurants, hotels, etc. which provide limited
access to property for specific purpose.
xxx xxx xxx
53. It is also emphasized that a tax cannot be
struck down on the ground of lack of legislative
competence by enquiring whether the definition
accords with what the layman‟s view of service is.
It is well settled that in matters of taxation laws, the
court permits greater latitude to pick and choose
objects and rates for taxation and has a wide
discretion with regard thereto. We may in this
context refer to the decision of Mafatlal Industries
Ltd. v. Union of India (SCC para 343, at pp.740-
41):
"In the matter of taxation laws, the court permits
a great latitude to the discretion of the
legislature. The State is allowed to pick and
choose districts, objects, persons, methods and
even rates for taxation, if it does so reasonably.
The courts view the laws relating to economic
activities with greater latitude than other
matters."
54. Therefore, a levy of service tax on a
particular kind of service could not be struck down
on the ground that it does not conform to a common
understanding of the word "service" so long as it
does not transgress any specific restriction
contained in the Constitution.
55. In fact, making available a premises for a
period of a few hours for the specific purpose of
being utilized as a mandap whether with or without
other services would itself be a service and cannot
be classified as any other kind of legal concept. It
does not certainly involve transfer of movable
property nor does it involve transfer of movable
property of any kind known to law either under the
Transfer of Property Act or otherwise and can only
be classified as a service."
49. In Gujarat Ambuja Cement Ltd. v. Union of India, AIR 2005
SC 3020, the challenge was to the legislative competence of the
Parliament to impose service tax on carriage of goods by transport
operators. It was urged that the matter came exclusively under Entry
56 of List II of the Seventh Schedule which pertains to "taxes on goods
and passengers covered by road or inland water ways". Their
Lordships noted that service tax is distinct from a tax on the sale or
hire purchase of goods and from a tax on land. While dealing with the
specific issue, the Apex Court has stated thus:
"32. It is clear therefore that Section 66 read with
Section 65(41)(j) and (ma) Chapter V of the
Finance Act, 1994 do not seek to levy tax on goods
or passengers. The subject matter of tax under
those provisions of the Finance Act, 1994 is not
goods and passengers, but the service of
transportation itself. It is a levy distinct from the
levy envisaged under Entry 56. It may be that both
the levies are to be measured on the same basis, but
that does not make the levy the same. As was held
in Federation of Hotel and Restaurant Association
of India etc. v. Union of India and others (1989) 3
SCC 634:
"..... subjects which in one aspect and for one
purpose fall within the power of a particular
legislature may in another aspect and for another
purpose fall within another legislative power.....
Indeed, the law „with respect to‟ a subject might
incidentally „affect‟ another subject in some
way, but that is not the same thing as the law
being on the latter subject. There might be
overlapping; but the overlapping must be in law.
The same transaction may involve two or more
taxable events in its different aspects. But the
fact that there is an overlapping does not detract
from the distinctiveness of the aspects." (pg.652-
653).
33. Since service Tax is not a levy on passengers
and goods but on the event of service in connection
with the carriage of goods, it is not therefore
possible to hold that the Act in pith and substance is
within the States exclusive power under Entry 56 of
List II. What the Act ostensibly seeks to tax is what
it, in substance, taxes. In the circumstances, the Act
could not be termed to be a colourable piece of
legislation. It is not the case of the petitioners that
the Act is referable to any other entry apart from
Entry 56 of List II. Therefore the negation of the
petitioners submission perforce leads to the
conclusion that the Act falls within the residuary
power of Parliament under Entry 97 of List I."
50. In All India Federation of Tax Practitioners (supra), a Division
Bench decision of the Bombay High Court upholding the legislative
competence of the Parliament to levy service tax vide the Finance Act,
1994 and the Finance (No.2) Act, 1998 was assailed before the Apex
Court. The issue that arose pertained to the competence of the
Parliament to levy service tax on practising Chartered Accountants and
Architects having regard to Entry 60, List II of the Seventh Schedule to
the Constitution and Article 276 of the Constitution. Their Lordships
referred to the reasons for imposition of service tax, the scheme of the
Finance Act, 1994 and the Finance Act, 1998, the relevant provisions
of the Constitution of India and dealt with the meaning of service tax.
While dealing with the concept and meaning of service tax, their
Lordships opined that the concept of service tax is an economic
concept. Thereafter, the Apex Court proceeded to state that as an
economic concept, there is no distinction between the consumption of
goods and consumption of service as both satisfy human needs. It is
this economic concept based on the legal principle of equivalence
which now stands incorporated in the Constitution vide the
Constitution (Eighty-eighth Amendment) Act, 2003. Further, it is
important to note that "service tax" is a value added tax which, in turn,
is a general tax which applies to all commercial activities involving
production of goods and provision of service. Moreover, VAT is a
consumption tax as it is borne by the client, that is, the person who
enjoys the benefit or avails the service. Thereafter, their Lordships
referred to the decision in Moti Laminates (P) Ltd. v. CCE, (1995) 3
SCC 23 and opined thus:
24. The importance of the above judgment of this
Court is twofold. Firstly, applying the principle of
equivalence, there is no difference between
production or manufacture of saleable goods and
production of marketable/saleable services in the
form of an activity undertaken by the service
provider for consideration, which correspondingly
stands consumed by the service receiver. It is this
principle of equivalence which is in-built into the
concept of service tax, which has received legal
support in the form of the Finance Act, 1994. To
give an illustration, an Event Manager
(professional) undertakes an activity, namely, of
organizing shows. He belongs to the profession of
Event Management. As long as he is in the
business or calling or profession of an Event
Manager, he is liable to pay the tax on profession,
calling or trade under Entry 60 of List II. However,
that tax under Entry 60 of List II will not cover his
activity of organizing shows for consideration
which provide entertainment to the connoisseurs.
For each show he plans and creates events based on
his skill, experience and training. In each show he
undertakes an activity which is commercial and
which he places before his audience for its
consumption. The tax on service is levied for each
show. This situation is very similar to a situation
where goods are manufactured or produced with the
intention of being cleared for home consumption
under the Central Excise Act, 1944. This is how
the principle of equivalence equates consumption of
goods with consumption of services as both satisfy
the human needs. In the case of internet service
provider, service tax is leviable for online
information and database provided by websites.
But no service tax is leviable on e-commerce as
there is no database access.
25. On the basis of the above discussion, it is
clear that service tax is VAT which in turn is both a
general tax as well as destination based
consumption tax leviable on services provided
within the country."
After so stating, their Lordships proceeded to advert to the
meaning of the words "taxes on professions" and held as follows:
"34. As stated above, Entry 60, List II refers to
taxes on professions, etc. It is the tax on the
individual person/firm or company. It is the tax on
the status. A chartered accountant or a cost
accountant obtains a licence or a privilege from the
competent body to practice. On that privilege as
such the State is competent to levy a tax under
Entry 60. However, as stated above, Entry 60 is not
a general entry. It cannot be read to include every
activity undertaken by a chartered accountant/cost
accountant/architect for consideration. Service tax
is a tax on each activity undertaken by a chartered
accountant/cost accountant or an architect. The
cost accountant/chartered accountant/architect
charges his client for advice or for auditing of
accounts. Similarly, a cost accountant charges his
client for advice as well as doing the work of
costing. For each transaction or contract, the
chartered accountant/cost accountant renders
profession based services. The activity undertaken
by the chartered accountant or the cost accountant
or an architect has two aspects. From the point of
view of the chartered accountant/cost accountant it
is an activity undertaken by him based on his
performance and skill. But from the point of view
of his client, the chartered accountant/cost
accountant is his service provider. It is a tax on
"services". The activity undertaken by the
chartered accountant or cost accountant is similar to
saleable or marketable commodities produced by
the assessee and cleared by the assessee for home
consumption under the Central Excise Act.
35. For each contract, tax is levied under the
Finance Acts, 1994 and 1998. Tax cannot be levied
under that Act without service being provided
whereas a professional tax under Entry 60 is a tax
on his status. It is the tax on the status of a cost
accountant or a chartered accountant. As long as a
person/firm remains in the profession, he/it has to
pay professional tax. That tax has nothing to do
with the commercial activities which he undertakes
for his client. Even if the chartered accountant has
no work throughout the accounting year, still he has
to pay professional tax. He has to pay the tax till he
remains in the profession. This is the ambit and
scope of Entry 60, List II which is a taxing entry.
Therefore, Entry 60 contemplates tax on
professions, as such. Entry 60, List II refers to "tax
on employments".
xxx xxx xxx
39. It was further observed that a lawyer has to
pay tax to take out a licence irrespective of whether
he actually practices or not. That tax is a tax for the
privilege of having the right to exercise the
profession if and when the person taking out the
licence chooses to do so. It was held that the
impugned tax on entertainment levied by the
Cantonment Board was a tax on the act of
entertainment resulting in a show and, therefore, the
impugned law imposing tax on entertainment fell
under Entry 50 of the Provincial List in Schedule
VII to the GOI Act, 1935 and not under Entry 46
(similar to Entry 60 of List II). Therefore, it was
held that Bombay Legislature had power to enact
the law imposing tax on entertainment which had
nothing to do with the law imposing tax on the
privilege of carrying on any profession, trade or
calling under Entry 46 (similar to Entry 60 of List II
in the present case). Therefore, this Court has
clarified the dichotomy between tax on privilege of
carrying on any trade or calling on one hand and the
tax on the activity which an entertainer undertakes
on each occasion. The tax on privilege to practice
the profession, therefore, falls under Entry 60, List
II. It is quite different from tax on services.
Keeping in mind the aforestated dichotomy, it is
clear that tax on service does not fall under Entry
60, List II. Therefore, Parliament has absolute
jurisdiction and legislative competence to enact the
law imposing tax on services under Entry 97, List I
of the Seventh Schedule to the Constitution."
Eventually, it has been held in the said case that the tax on
services do not fall under Entry 60, List II and the service would fall
under Entry 92-C/97 of List I. Be it noted, it has been held therein that
service tax is a value added tax and the value addition is on account of
activities like planning, consultation, advising, etc. It is an activity
which provides value addition as in the case of manufacture of goods
which attracts excise duty. Their Lordships, in the said case, opined
that the tax falls on the activity which is the subject matter of service
tax, if the word "service" is to be substituted in the place of goods by
applying the principle of equivalence.
51. In Association of Leasing and Financial Service Companies
(supra), while dealing with the validity of Sections 65(12) and
65(105)(zm) of the Finance Act, 1994 as amended which pertain to the
levy of service tax on leasing and hire-purchase, the Apex Court, after
referring to the decisions in D.H. Hazareth (supra), Ujagar Prints (II)
v. Union of India, (1989) 3 SCC 488, International Tourist
Corporation (supra) and Goodricke Group Ltd.(supra), has held thus:
"59. Applying the above decisions to the present
case, on examination of the impugned legislation in
its entirety, we are of the view that the impugned
levy relates to or is with respect to the particular
topic of "banking and other financial services"
which includes within it one of the several
enumerated services viz. financial leasing services.
These include long-term financing by banks and
other financial institutions (including NBFCs).
These are services rendered to their customers
which comes within the meaning of the expression
"taxable services" as defined in Section
65(105)(zm). The taxable event under the impugned
law is the rendition of service. The impugned tax is
not on material or sale. It is on activity/service
rendered by the service provider to its customer.
Equipment leasing/hire-purchase finance are long-
term financing activities undertaken as their
business by NBFCs. As far as the taxable value in
case of financial leasing including equipment
leasing and hire purchase is concerned, the amount
received as principal is not the consideration for
services rendered. Such amount is credited to the
capital account of the lessor/hire-purchase service
provider. It is the interest/finance charge which is
treated as income or revenue and which is credited
to the revenue account. Such interest or finance
charges together with the lease management
fee/processing fee/documentation charges are
treated as considerations for the services rendered
and accordingly they constitute the value of taxable
services on which service tax is made payable."
52. From the aforesaid pronouncements in the field, the following
principles regarding service tax can be fruitfully culled out:
(i) The measure of taxation does not affect the nature of taxation
and, therefore, the manner of quantification of the levy of
service tax has no bearing on the factum of legislative
competence.
(ii) Taxable services can include providing of premises on a
temporary basis for organizing any official, social or business
function but also other facilities supplied in relation thereto.
(iii) Levy of service tax on a particular kind of service cannot be
struck down on the ground that it does not conform to a common
understanding of the word „service‟ as long as it does not
transgress any specific restriction embodied in the Constitution.
(iv) Service tax is a levy on the event of service.
(v) The concept of service tax is an economic concept.
(vi) „Consumption of service‟ as in case of „consumption of goods‟
satisfies human needs.
(vii) Service tax is a value added tax which, in turn, is a general tax
applicable to all commercial activities involving provision of
service.
(viii) Value added tax is a general tax as well as destination based
consumption tax leviable on services provided within the
country.
(ix) The principle of equivalence is in-built into the concept of
service tax.
(x) The activity undertaken in a transaction can have two
components, namely, activity undertaken by a person pertaining
to his performance and skill and, secondly the person who avails
the benefit of the said performance and skill. In the said context,
the two concepts, namely, activity and the service provider and
service recipient gain significance.
53. Having enumerated the principles relating to the fields of
legislation, the situations and circumstances when a levy on tax on land
comes under Entry 49 of List II and what in conceptual essentiality
covers the facet of service tax, it is presently seemly to dwell upon the
three major submissions which have been astutely canvassed in
different ways by the learned counsel at the Bar. What is contended by
them is that renting and leasing is basically associated with the land
and putting any kind of unnecessary impact on the same would not
make it a tax on any activity to bring it with the purview of Entry 97 of
List I of the Constitution. It is urged that it is the duty of the court to
broadly interpret the entries of the field and effort has to be made to
see that the Parliament, pursuant to the residuary powers vested in it,
does not trench upon the powers of the State Legislature especially in
the case of a taxable event pertaining to the object which is covered
within Entry 49 of List II. In essence, the proponement is that into the
field of State legislation under List II, a free entry of Entry 97 of List I
should not be allowed. That apart, it is submitted that the concept of
service tax has been evolved by the courts of law by attaching value
addition to it and in the absence of any value addition in renting,
leasing and licensing or any aspect in that regard, if the same brought
under the net of service tax, a constitutional amendment is required and
it is not permissible to bring it in by statutory amendment as has been
done by the Finance Act, 2010. The seminal submission is that there is
no value addition and, therefore, the service tax is not imposable. Per-
contra, the learned Additional Solicitor General would submit that
once a levy of tax does not fall under List II or List III, it would fall in
List I, regard being had to the amplitude of the residuary power that
has been provided in the Constitution under Entry 97 of List I of the
Seventh Schedule of the Constitution. In this regard, we may note with
profit certain authorities in the field.
54. In International Tourist Corporation (supra), it has been held
that before exclusive legislative competence can be claimed by the
Parliament by resort to the residuary power, the legislative
incompetence of the State legislature must be clearly established.
Entry 97 itself is specific in that a matter can be brought under that
Entry only if it is not enumerated in List II or List III and in the case of
a tax if it is not mentioned in either of those Lists. In a Federal
Constitution like ours, where there is a division of legislative subjects
but the residuary power is vested in the Parliament, such residuary
power cannot be so expansively interpreted as to whittle down the
power of the State Legislature. That might affect and jeopardize the
very federal principle. The federal nature of the Constitution demands
that an interpretation which would allow the exercise of legislative
power by the Parliament pursuant to the residuary powers vested in it
to trench upon the State legislation and which would thereby destroy or
belittle state autonomy must be rejected. In the said case, it has been
further opined that where the competing entries are an entry in List II
and Entry 97 of List I, the entry in the State List must be given a broad
and plentiful interpretation.
55. In Harbhajan Singh Dhillon (supra), it has been held thus:
"59. It was also said that if this was the intention
of the Constitution makers they need not have
formulated List I at all. This is the point which was
taken by Sardar Hukam Singh and others in the
debates referred to above and was answered by Dr.
Ambedkar. But apart from what has been stated by
Dr. Ambedkar in his speech extracted above there is
some merits and legal effect in having included
specific items in List I for when there are three lists
it is easier to construe List II in the light of Lists I
and II. If there had been no List I, many items in
List II would perhaps have been given much wider
interpretation than can be given under the present
scheme. Be that as it may, we have the three lists
and a residuary power and therefore it seems to us
that in this context; if a Central Act is challenged,
as being beyond the legislative competence of
Parliament, it is enough if it is a law with respect to
matters or taxes enumerated in List II. If it is not,
no further question arises."
56. In State of Karnataka v. Union of India & Anr., AIR 1978 SC
68, it has been held thus:
"96. It will be seen that the test adopted in
Dhillon‟s case (supra) was that if a subject does not
fall within a specifically demarcated field found in
List II or List III it would fall in List I apparently
because the amplitude of the residuary field
indicated by Entry 97, List I. Legislative entries
only denote fields of operation of legislative power
which is actually conferred by one of the articles of
the Constitution. It was pointed out that Art. 248 of
the Constitution conferring legislative power is
"framed in the widest possible terms." The validity
of the Wealth Tax Act was upheld in that case. The
argument that a wide range given to Entry 97 of
List I, read with Art. 248 of the Constitution would
destroy the federal structure" of our Republic was
rejected there. On an application of similar test
here, the powers given to the Central Government
by Section 3 of the Act, now before us, could not
be held to be invalid on the ground that federal
structure of the State is jeopardized by the view we
are adopting in conformity with the previous
decisions of this Court."
57. In M/s. Sat Pal and Co. etc., v. Lt. Governor of Delhi and
others, AIR 1979 SC 1550, while dealing with the challenge to
legislative competence, it has been held thus:
"Whenever legislative competence is in question
attempt of the Courts is to find out whether the
legislation squarely falls in one or the other entry.
If a particular legislation is covered by any specific
entry well and would be : is it beyond the
legislative competence of Parliament? In
undertaking this exercise it is quite often known
that a legislation may be covered by more than one
entry because an analysis has shown that the entries
are overlapping. If the legislation may fall in one
entry partly and part of it may be covered by the
residuary entry, the legislation would nonetheless
be immune from the attack on the ground of
legislative competence."
After so stating, their Lordships proceeded to state that with the
advancement of society, expanding horizons of scientific and technical
knowledge, probe into the mystery of creation, it is impossible to
conceive that every imaginable head of legislation within human
comprehension and within the foreseeable future could have been
within the contemplation of the founding fathers and was, therefore,
specifically enumerated in one or the other of the three Lists, meaning
thereby that the three Lists were exhaustive of Governmental action
and activity. Elaborating further, their Lordships stated that the
demands of the welfare State, hopes and aspirations and expectations
in a developing society and the complex world situation with inter-
dependence and hostility amongst nations may necessitate legislation
on some such topics which may be inconceivable even for visionaries
and, hence, could not have been within the contemplation of the
founding fathers. Complex modern governmental administration in a
federal set up providing distribution of legislative powers coupled with
the power of judicial review may raise such situations that a subject of
legislation may not squarely fall in any specific entry in Lists I or III.
Upon proper appraisal of the aforesaid, their Lordships finally opined
that it may not be covered by any entry in List II, though apparently or
on a superficial view it may be covered by an entry in List II. In such a
situation, the Parliament would have the power to legislate on the
subject in exercise of the residuary power under Entry 97, List I and it
would not be proper to unduly circumscribe, corrode or whittle down
this power by saying that the subject of legislation was present to the
mind of the framers of the Constitution because apparently it falls in
one of the entries in List II and thereby deny power to legislate under
Entry 97.
58. In Godfrey Phillips India Ltd. (supra), it has been held thus-
"46. Therefore, taxing entries must be construed
with clarity and precision so as to maintain such
exclusivity, and a construction of a taxation entry
which may lead to overlapping must be eschewed. If
the taxing power is within a particular legislative field
it would follow that other fields in the legislative lists
must be construed to exclude this field so that there is
no possibility of legislative trespass.
Further, with respect to the exclusive legislative powers of the
Parliament and the States, their Lordships have held thus:
"49. Under the three lists of the Seventh Schedule
to the Indian Constitution a taxation entry in a
legislative list may be with respect to an object or
an event or may be with respect to both. Article
246 makes it clear that the exclusive powers
conferred on the Parliament or the States to
legislate on a particular matter includes the power
to legislate with respect to that matter. Hence,
where the entry describes an object of tax, all
taxable events pertaining to the object are within
that field of legislation unless the event is
specifically provided for elsewhere under a
different legislative head. Where there is the
possibility of legislative overlap, courts have
resolved the issue according to settled principles of
construction of entries in the legislative lists."
59. In Federation of Hotel & Restaurant v. Union of India and
others, AIR 1990 SC 1637, it has been held that the question of
legislative practice as to what a particular legislative entry could be
held to embrace is inapposite while dealing with a tax which is sui
generis or non-descript imposed in exercise of the residuary powers so
long as such tax is not specifically enumerated in Lists II and III.
60. As the tabular chart that we have reproduced would clearly
show, Section 65 is the provision which deals with the charging of
service tax. Section 66(105) defines taxable service to mean any
service provided or to be provided to any person, by any other person
by renting immovable property or any other service in relation to such
renting for use in the course of or furtherance of business or commerce.
Section 65(90a) has been amended in 2010 to mean renting of
immovable property which includes renting, letting, leasing, licensing
or other similar arrangements of immovable property for use in the
course or furtherance of business or commerce but does not include
certain aspects. Explanation No.1 to the said provision provides that
"for use in the course or furtherance of business or commerce"
includes the use of immovable property as factories, office buildings,
warehouses, theatres, exhibition halls and multiple-use buildings.
Explanation 2 further declares that for the purposes of this said clause,
renting of immovable property would include allowing or permitting
the use of space in an immovable property, irrespective of the transfer
of possession or control of the said immovable property. The earlier
provision had introduced the definition of renting of immovable
property including renting, letting, leasing, licensing or other similar
arrangements in the course or furtherance of business or commerce.
61. In the first Home Solution case, the Division Bench had posed
the question whether the renting of immovable property for use in the
course of or furtherance of business or commerce by itself is service.
The Bench referred to Section 65(105)(zzzz) as it stood then and
opined that it was unable to discern any value addition and, hence, the
renting of immovable property for use in the course or furtherance of
business or commerce by itself does not entail any value addition and,
therefore, cannot be regarded as service. Because of the said view, the
circular was quashed. Be it noted, in the said decision, the Bench has
not appositely adverted to Section 65(90a) which clearly postulated
that renting of immovable property includes renting, letting, leasing,
licensing or other similar arrangements for use in the course or
furtherance of business or commerce barring certain exceptions. In
Section 66(105)(zzzz), the taxable service was defined to mean any
service provided to any person by any other person relating to the
renting of immovable property for use in the course of or furtherance
of business or commerce. The Parliament, by amendment, has
differently positioned the words "in relation to". As we perceive, the
Division Bench has laid down that the mere renting of immovable
property for use in the course of or furtherance of business or
commerce by itself could not entail any value addition. If the
definition in Section 65(90a) is taken into consideration, there is a
deeming concept with regard to service and the taxable service is based
or founded on renting of immovable property. The learned senior
counsel for the petitioner would contend that the Parliament cannot, by
deeming fiction, create a tax liability to bring it within the purview of
Entry 97 of List I as that would be an indirect entrenchment on Entry
49 of List II. Per-contra, Mr. Chandhiok, relying on the decision in
Tamil Nadu Kalyana Mandapam Assn. (supra), submits that the
concept of service, as is understood by a layman, is not applicable to
the concept of taxing statute under the constitutional framework. He
would further contend that once this Court holds that the levy does not
pertain to a tax on land or building but an activity like renting, leasing,
licensing or other similar arrangements of immovable property for use
in the course or furtherance of business or commerce, it would come
within the residuary power of the Parliament and the same should put
the controversy to rest.
62. As presently advised, we shall dwell upon the concept of value
addition. The hub of the matter is when a premise is let out for use,
should a person who rents an immovable property or renders any other
service in relation to such letting for use in the course or furtherance of
business or commerce be liable to service tax.
63. The Division Bench in the first Home Solution case (supra), as
we have reproduced hereinbefore, has opined that renting of
immovable property for use in the course or furtherance of business or
commerce by itself would not constitute service as there is no value
addition. In the dictionary clause in Section 65(90A), while defining
renting of immovable property, it has been stated that it includes
renting, letting, leasing, licencing or other similar arrangements for
immovable property for use in the course or furtherance of business or
commerce. On a perusal of the decision in the first Home Solution
case (supra), it is discernible that the Division Bench has not
appositely adverted to the same. The contention that despite the
amendment when the value addition as a concept is not attracted to
renting, letting, leasing and licencing even for commercial purpose, the
ingredients of service tax are not satisfied is not well founded. In this
context, it is to be appreciated that the concept of service, as is
understood in common parlance or common understanding, would not
be a factor to hold a provision as unconstitutional. We need not advert
to whether the Parliament has, by using of the definition, created a
fiction. The terms which are significant are renting, letting, leasing
and licencing for use in the course or furtherance of business or
commerce. The legislature has not merely said renting of immovable
property. It has used the terminology renting of property or any
service in relation to such renting and that too in the course or
furtherance of business or commerce, the last part being important.
While understanding the concept of service tax, it is to be kept in mind
that it is both a general tax as well as a destination based consumption
tax levied on services. Sometimes services can be "property based
services" and "performance based services". The architects, interior
designers and real estate agents would come in the category of
performance service providers.
64. It is contended that when a property is leased or rented, the
element of service is absolutely absent. In this context, the concept of
rent has to be appositely understood. A rent is basically a reward paid
for the use of the land. The tenant or the occupant pays the same to use
the premises. In the economic concept, rent can be categorized into
two heads, namely, contract rent and economic rent. Contract rent
fundamentally refers to the total amount of money paid for use of the
land and economic rent is a part of the total payment which is made for
the use of land and it is estimated on many a ground. The economic
rent can be contract rent minus interest on the capital invested. To give
an example, a tenant pays Rs.20,000/- per year as contract rent but the
interest on capital invested is Rs.3,000/- per year. Thus, the remaining
amount, that is, Rs.17,000/- (Rs.20,000.00 - Rs.3,000.00) is paid for
the use of the land.
65. The concept of economic rent can also represent an amount
which a factor can earn in its next best alternative use. To give an
example, a piece of land yields in a particular use Rs.5,000 in a year.
If it is transferred to its next best use, it can earn a better income. At
one point of time, the Theory of Rent was propagated by David
Ricardo. According to the Ricardian theory, rent has differential
surplus and the same arises due to certain facets relating to fertility,
productivity, extensive cultivation, quality, etc. Ricardo fundamentally
considered rent as a surplus accruing to superior land over inferior land
called "marginal land". It also depended upon shifting of population.
Be it noted, the rent varies depending upon advantages. To give an
example, two decades back, a market is established in zone „A‟,
thereafter, a railway station starts in another zone called „B‟. The cost
of a particular item on being transported from zone „A‟ to outside the
city will cost more than the articles transported from zone „B‟.
Compared to zones „A‟ and „B‟, if there are other zones which are
farther away like zones „C‟ and „D‟, they will be less advantageous.
Thus, the lands or buildings located in zones „A‟ and „B‟ would be
more advantageous. The value difference comes into play because of
transport charges. The surplus arises because of the location and
availability of facilities. Appreciated in this context, economic rent is a
surplus which arises on account of natural differential advantages and
can be treated as „service‟. That apart, scarcity of premises, the
pressure of demand and the increase of population are also
contributory factors. Consequently, any land or building situated in a
particular place does possess certain inherent qualities which
distinguishes it from land or building at other places. The factors
which really weigh are location, accessibility, goodwill, construction
quality and other advantages. A land or building in one area may fetch
more rent than in another area. When a particular building is rented or
leased or given under arrangement for commercial or business
purposes, many factors are taken into consideration. Every building or
premises cannot be utilized for commercial or business purposes.
When a particular building or premises has the "effect potentiality" to
be let out on rent for the said purpose, an element of service is involved
in the immovable property and that tantamounts to value addition
which would come within the component of service tax. To further
clarify, an element of service arises because a person who intends to
avail the property on rent wishes to use it for a specific purpose. The
value of the building gets accentuated because of scarcity of land or
building, goodwill, accessibility and similar ancillary advantages
which constitute value addition.
66. The modern economic theory of rent also has a nexus with
demand and supply. In this analysis, rental is hiked because supply of
land is scarce in relation to its demand. This economic concept is
called "scarcity theory of rent". This includes the facet of competition
and quality. According to the modern theory, rent is not peculiar to
land alone but arises in the case of many a factor which earn over and
above the transfer earnings. There is a distinction between "actual
earnings" and "transfer earnings". According to the modern analysis
of rent, it is not peculiar to land alone and the concept of transfer
earning is more attracted towards the building depending upon its use.
As an economic concept, it has been developed that rent qua building
or premises or, for that matter, land has a nexus, an inseparable one,
with the potentiality of its use in a competitive market. The economic
growth has an effect on rent. In this regard, modern economists have
evolved certain methods, namely, technical progress in methods of
production, development in means of transportation and population
growth. We have referred to these concepts only to highlight that the
legislature has not imposed tax on mere letting but associated it with
business or commercial use. Thus, it comes within the concept of
activity and the value addition is inherent. It is worth noting that the
language employed in the dictionary clause and the charging section,
that is, "commercial use for business purposes" have their own
significance. In Black‟s law dictionary, "commercial" has been
defined as "relates to or is connected with trade and traffic or
commerce in general; is occupied with business and commerce". In
R.M. Investment and Trading Co. Pvt. Ltd. v. Boeing Co. and
another, (1994) 4 SCC 541, while dealing with the expression
"commercial" it has been opined that the expression "commercial"
should be construed broadly having regard to the manifold activities
which are integral part of international trade today.
67. In Stroud‟s judicial dictionary (5th Edition), the term
„commercial‟ is defined as traffic, trade or merchandize in buying and
selling of goods.
68. When premises is taken for commercial purpose, it is basically
to subserve the cause of facilitating commerce, business and promoting
the same. Therefore, there can be no trace of doubt that an element of
value addition is involved and once there is a value addition, there is an
element of service.
69. In view of our aforesaid analysis, we are disposed to think that
the imposition of service tax under Section 65(105)(zzzz) read with
Section 66 is not a tax on land and building which is under Entry 49 of
List II. What is being taxed is an activity, and the activity denotes the
letting or leasing with a purpose, and the purpose is fundamentally for
commercial or business purpose and its furtherance. The concept has
to be read in conjunction. As we have explained that service tax is
associated with value addition as evolved by the judgments of the
Apex Court, the submission that the base of the said decisions cannot
be taken away by a statutory amendment need not be adverted to.
Once there is a value addition and the element of service is involved, in
conceptual essentiality, service tax gets attracted and the impost gets
out of the purview of Entry 49 of List II of the Seventh Schedule of the
Constitution and falls under the residuary entry, that is, Entry 97 of
List I.
70. In view of our conclusion, the decision in the first Home
Solution case does not lay down the law correctly inasmuch as in the
said decision, it has been categorically laid down that even if a
building/land is let out for commercial or business purposes, there is no
value addition. Being of this view, we overrule the said decision.
71. The next limb of attack is with regard to the retrospective
applicability of the provision. The learned counsel for the petitioners
have submitted that the tax and the penalty could not have been
imposed with retrospective effect. It is worth noting that the
Parliament, keeping in view the first Home Solution case, substituted
sub-clause (zzzz) in the present incarnation and gave retrospective
effect to cure the deficiency. It is well settled in law that it is open to
the legislature to pass a legislation retrospectively and remove the base
on which a judgment is delivered. The said view has been stated in
Bakhtawar Trust and others v. M.D. Narayan and others, (2003) 5
SCC 298. In the said case, in paragraphs 20 and 26, it has been held
thus:
"20. In Vijay Mills Company Ltd. and Ors. v. State of
Gujarat and Ors., (1993) 1 SCC 345, it was held-
"18. From the above, it is clear that there are
different modes of validating the provisions of the
Act retrospectively, depending upon the intention
of the legislature in that behalf. Where the
Legislature intends that the provisions of the Act
themselves should be deemed to have been in
existence from a particular date in the past and
thus to validate the actions taken in the past as if
the provisions concerned were in existence from
the earlier date, the Legislature makes the said
intention clear by the specific language of the
validating Act. It is open for the legislature to
change the very basis of the provisions
retrospectively and to validate the actions on the
changed basis. This is exactly what has been done
in the present case as is apparent from the
provisions of Clauses (3) and (5) of the Amending
Ordinance corresponding to Sections 2 and 4 of the
Amending Act 2 of 1981. We have already
referred to the effect of Sections 2 and 4 of the
amending Act. The effect of the two provisions,
therefore, is not only to validate with retrospective
effect the rules already made but also to amend
the provisions of Section 214 itself to read as if the
power to make rules with retrospective effect were
always available under Section 214 since the said
section stood amended to give such power from the
time the retroactive rules were made. The
legislature had thus taken care to amend the
provisions of the Act itself both to give the
Government the power to make the rules
retrospectively as well as to validate the rules
which were already made.
X X X X
26. Where a legislature validates an executive action
repugnant to the statutory provisions declared by a court
of law, what the legislature is required to do is first to
remove the very basis of invalidity and then validate the
executive action. In order to validate an executive action
or any provision of a statute, it is not sufficient for the
legislature to declare that a judicial pronouncement given
by a court of law would not be binding, as the legislature
does not possess that power. A decision of a court of law
has a binding effect unless the very basis upon which it is
given is so altered that the said decision would not have
been given in the changed circumstances."
72. In State of Himachal Pradesh v. Narain Singh, (2009) 13 SCC
165, it has been held that it would be permissible for the legislature to
remove a defect in earlier legislation and the defect can be removed
both retrospectively and prospectively by legislative action and the
previous actions can be validated.
73. On the question of penalty due to non-payment of tax, it is open
to the government to examine whether any waiver or exemption can be
granted. It may be noted that the appeal against Home Solutions-I is
pending before the Supreme Court but the operation of the said
judgment has not been stayed.
74. Quite apart from the above, as we have overruled the first Home
Solution case, we are disposed to think that the provisions would
operate from 2007 and the amendment brought by the Parliament is by
way of ex abundanti cautela.
75. In view of the aforesaid analysis, we proceed to enumerate our
conclusions in seriatim as follows:
(a) The provisions, namely, Section 65(105)(zzzz) and Section 66 of
the Finance Act, 1994 and as amended by the Finance Act, 2010,
are intra vires the Constitution of India.
(b) The decision rendered in the first Home Solution case does not
lay down the correct law as we have held that there is value
addition when the premises is let out for use in the course of or
furtherance of business or commerce and it is, accordingly
overruled.
(c) The challenge to the amendment giving it retrospective effect is
unsustainable and, accordingly, the same stands repelled and the
retrospective amendment is declared as constitutionally valid.
76. Consequently, the writ petitions, being sans substratum, stand
dismissed without any order as to costs.
CHIEF JUSTICE
A.K. SIKRI, J.
SANJIV KHANNA, J.
SEPTEMBER 23, 2011
dk/pk
